Royal Caribbean Cruises' shares surged Tuesday after the cruise operator appeased investors with its announcement that it is slashing jobs and taking other steps to reduce annual expenses by $125 million.
Royal Caribbean Cruises Ltd. shares jumped $4.04, or 17.8 percent, to end at $26.74. They had lost 6 percent Monday as investors anticipated the Miami-based company's second-quarter earnings report.
In a conference call with investors on Tuesday, Chairman and CEO Richard Fain said the current situation, including soaring fuel prices and the economic downturn, "is unlike anything we've experienced in our industry's history."
The company said late Monday that it will cut 400 land-based jobs and reduce some noncore investments to contend with fuel prices, which spiked 55 percent during the quarter.
"Our goal of $125 million is a stretch, but we are determined to achieve it and to make it last," Fain said of Royal Caribbean's cost cutting plan.
It reported that second-quarter earnings dropped 34 percent from the same period a year earlier to $84.7 million, or 40 cents a share, meeting the low end of the company's guidance of 40 cents to 45 cents per share.
Net yield rose 1 percent, slightly below the company's forecast of 2 percent growth. Net yield, a key profitability gauge, is the company's rate of return after subtracting expenses such as taxes.
The jobs to be cut range from officer-level positions to clerical. The company is also eliminating an educational program for college students called "The Scholar Ship."
It expects to incur about $15 million, or 7 cents a share, in third-quarter charges related to the restructuring.
Fain said, however, that cruise demand and bookings are holding up. He attributed lower-than-expected second-quarter yields to a disappointing performance by the company's Spanish brand, Pullmantur Cruises, which was hurt by a grounding incident and a weak Spanish economy.
"The good news is that the bookings that we have been taking this year and are now taking for next year continue to hold up better than even a year ago, and at that time the market was pretty uniformly seen as being very buoyant," Fain said.
Stifel Nicolaus & Co. analyst Steven Wieczynski said investors are likely to overlook the company's second-quarter results, because most of the bookings occurred during late 2007.
"We believe management's yield guidance for the remainder of 2008 is encouraging and the fact that early reads on 2009 bookings are strong with better load factors and pricing should encourage investors that cruise demand remains solid," Wieczynski said.
Including the restructuring charges, Royal Caribbean expects third-quarter earnings per share between $1.65 and $1.70, with net yield growth about 2 percent.
The company expects full-year earnings to range from $2.55 to $2.65 per share, with net yield growth of 3 percent to 4 percent.
Goldman Sachs analyst Steven Kent said he views Royal Caribbean's actions "as a start." He said cruise companies must continue to cut expenses over the long term.
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