It's not exactly smooth sailing in the cruising industry.
The company was pinched on both ends. Between fuel costs per metric ton rising by 11% during the quarter relative to last year and a downturn in bookings that began in September, it's hard to milk margins when you have to discount berths to fill up ships.
The report is worse than the numbers posted by rival Carnival
It's not going to get any better in the near term. Bookings have stabilized, though pricing pressures remain. Royal Caribbean is now looking to earn $1.40 a share in 2009, a far cry from the $2.68 a share profit it rang up in 2008 (and the $2.82 a share it earned in 2007).
Net yields -- an industry metric consisting of net revenue per available passenger cruise day -- are projected to fall by 9% to 13% this year.
Cruise operators have flexibility in discounting their cabins. There is incremental money to be made from the casinos, bars, shore excursions, and Steiner Leisure
The cruise industry will get over this slump. Royal Carribean, NCL, Carnival, and Disney
More amenities, expansion into new port cities, and a captive audience are just a few benefits the cruising industry has over conventional hoteliers like Wyndham
This isn't going to be pretty in the near term. Royal Caribbean investors knew that it was time to strap on the life vests when the company suspended its dividend two months ago. It's now looking to post a loss between $0.30 a share and $0.35 a share in the current quarter, but this is a seasonal softy anyway. The key catalyst now could be government stimulus payouts that find their way into cruise bookings in the telltale summer travel season.
Value investors may be wooed by the current valuation. The stock is fetching less than a third of the company's book value (though its assets are naturally ship-heavy) and just six times its depressed forward profitability. However, the company's debt-chunky balance sheet can capsize if things deteriorate aggressively.
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Longtime Fool contributor Rick Munarriz feels that the signature rock walls on RCL ships may not be the only barrier for the company. He has cruised with all four of the operators mentioned in the story, but only owns shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.