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Royal Caribbean (RCL) Continues Free Fall

 January 30, 2009 10:14 AM

I mentioned cruise operator Royal Caribbean (RCL) Wednesday (Jan 28: Royal Caribbean to $1?); frankly I wish I had thought about this sub sector of the economy some time over the past year and a half as I denounced consumer discretionary spending. Missed it completely. The stock was in the mid $9s Wednesday but with an earnings report coming - I did not want to place a wager in front of that event, but the stock has continued its implosion. RCL just broke below $7. I usually don't praise herding behavior analysts but looks like this was an excellent call by Barclays Capital; especially coming the day ahead of earnings.

Here is a snippet of their earnings
  • Royal Caribbean Cruises Ltd. said Thursday that its fourth-quarter earnings tumbled 98 percent, missing Wall Street's expectations, as cruise bookings fell and the company's fuel costs were higher than expected. The company also issued guidance for the first quarter of 2009 and the full year that fell well short of analysts' expectations. Cruise pricing remains very weak, although bookings have started to stabilize, the company said.
  • [Related -Royal Caribbean Cruises Ltd. (RCL): Can It Sail To Morgan Stanley's $49 Price-Target?]

    [Related -Japan Adds to Recent Stimulus Program]

    For the key "wave period" -- from January through March, when cruise bookings are generally high -- Royal Caribbean said it has stabilized bookings by cutting prices dramatically. Chief Financial Officer Brian Rice said onboard revenue also began to suffer during the fourth quarter as passengers trimmed their spending, particularly on gambling.

  • Royal Caribbean reported liquidity of $1 billion as of Dec. 31. On the conference call, managers stressed that they are comfortable with the company's cash position but said they may seek to extend the maturity date on some debt or take other action to enhance the company's financial position this year.

So this is a lot like what retailers are doing - to protect the revenue line they are slashing prices to create demand. That's fine for revenue; not so fine for profits.

The stock has fallen so quickly I'd expected a "rubber band" (reversion to mean) rally at some point relatively soon... it is nowhere near any resistence level. But I expected that with a lot of other "worst of breed" sectors and outside of REITs (government bailouts coming baby) most of the worst of groups are still far away from key resistence levels.

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