RCL 3Q09 REVIEW

RCL beats the quarter due to better cost controls but lowers 4Q09 outlook. Was Q3 an anomaly for RCL and leisure?

RCL beat it's EPS guidance and the consensus estimate of $1.03 by $0.04. However, the beat was all cost driven versus expectations and the outlook for 4Q09 was disappointing.

Despite company yield guidance of -16.5% for the quarter, most people (including ourselves) were modeling something better.  Better Q3 yields were already consensus.  RCL missed revenues expectations but better cost controls saved the day once again.  Specifically, commissions & transportation, onboard & other, and payroll all came in slightly below our estimate, while marketing came in a little higher.

Lower yield outlook for 4Q09 was particularly disappointing given that RCL should benefit from the reversal of the FX drag.  Lowering guidance one quarter out but "reiterating" 1Q2010 positive guidance puts RCL's credibility and visibility into question.  So does on the margin negative commentary regarding pricing and close-in bookings.  We remain cautious on the consumer.

Highlighted Commentary from the Release

  • Like many other travel companies, we saw more strength than we expected during our peak season but have been experiencing more pricing pressure on some of our traditionally softer fall season sailings... Overall though, the business environment is largely unchanged and stable. We expect the yield deficit to continue to improve in the fourth quarter and we remain optimistic that 2010 will bring year-over-year yield improvement.
  • While the pricing environment is still not what we'd like it to be, we're pleased to see solid growth in our order book and a rapidly diminishing gap in year-over-year booked volume comparisons
  • The company expects fourth quarter Net Yields to decline approximately 7% to 8%, slightly worse than its previous forecast of down mid-single digits... As a consequence of the weaker economy in the state, we do not anticipate the same strength of close-in bookings in the fourth quarter as we saw in the third quarter.
  • For the full year the company maintained its projection for Net Yields to decline approximately 14%, or 12% to 13% after adjusting for changes in currency.
  • The company affirmed its earlier outlook for year-over-year improvements in net revenue yields in the first quarter and for the full year of 2010.