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What to Expect From Royal Caribbean (RCL) in Q3 Earnings?

Global cruise vacation company, Royal Caribbean Cruises Ltd. RCL is scheduled to report third-quarter 2017 numbers on Nov 7, before the opening bell.

Last quarter, the company pulled off positive earnings surprise of 2.40%. In fact, Royal Caribbean’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 3.52%.

Notably, this cruise operator’s shares have soared 63.6% in a year’s time, outperforming the industry’s 31.7% gain.

Given the strength and diversity of its brands and itineraries, Royal Caribbean has successfully captured the potential and repeat cruise vacationers. Moreover, strong booking and demand trends along with various profit-generating initiatives (particularly its Double-Double program) are expected to drive the quarter’s top- and bottom-line performance.

Markedly, the company’s bookings continue to be very robust as Royal Caribbean is benefiting from its global sourcing model, revenue management strategies and the price integrity program.

The Zacks Consensus Estimate for earnings in the to-be-reported quarter is pegged at $3.43, reflecting an increase of 7.1% over the prior-year quarter. Additionally, the quarter’s revenues are anticipated to improve 0.5% year over year to $2.58 billion.

Other Factors Likely to Affect Q3 Results

While Royal Caribbean’s capacity growth is likely to aid in meeting increased demand, ship innovation and technology investments are expected to lead to higher yields. Per management, net yields are projected to increase in the range of 4.5-5%. Notably, solid demand trends for Europe and North America products are anticipated to drive improvement over an already strong previous year.  In fact, the Zacks Consensus Estimate for the quarter’s net yields reflect a rise of nearly 5% year over year.

Furthermore, the company’s sailings in the Caribbean, Alaska and Asia-Pacific itineraries are likely to deliver strong results in the to-be-reported quarter. Meanwhile, increased investments in the Chinese cruise market are anticipated to further bolster the quarter’s results.

However, lingering global uncertainties in key operating regions might limit revenue growth. Also, continued strengthening of the U.S. dollar versus the company’s basket of currencies is expected to hurt profits in the quarter. An increase in fuel prices may further hamper the company’s performance.

Moreover, higher-than-anticipated load factors, timing and investment in revenue-generating activities are adding to the company’s costs. Net cruise costs (NCC), excluding fuel, are likely to be up about 4% to 4.5%. This increase in the cost metric primarily reflects year-over-year capacity reduction for the quarter. The consensus estimate for NCC, excluding fuel, also reflects a rise of 4%.

Taking into account the headwinds, our quantitative model predicts that Royal Caribbean does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: Royal Caribbean has an Earnings ESP of -1.10%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Royal Caribbean carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are a couple of stocks, which as per our model have the right combination of elements to post an earnings beat this quarter.

Take-Two Interactive Software, Inc. TTWO has an Earnings ESP of +5.69% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Red Rock Resorts, Inc. RRR has an Earnings ESP of +22.16% and a Zacks Rank #3.

Extended Stay America, Inc. STAY has an Earnings ESP of +0.44% and a Zacks Rank #3.

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Red Rock Resorts, Inc. (RRR): Free Stock Analysis Report
 
Extended Stay America, Inc. (STAY): Free Stock Analysis Report
 
Royal Caribbean Cruises Ltd. (RCL): Free Stock Analysis Report
 
Take-Two Interactive Software, Inc. (TTWO): Free Stock Analysis Report
 
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