Today’s news: Apple (AAPL) and Royal Caribbean Cruises (RCL) each reported first quarter results that beat expectations.
Apple (AAPL – yield 1.4%) reported second quarter results (September year end) after the market closed yesterday.
• Second quarter diluted EPS of $2.46 vs. the $2.36 consensus estimate.
• Second quarter revenue of $58.0 billion vs. the $57.4 billion consensus estimate.
• A new $75 billion share repurchase authorization.
• A 5.5% dividend increase from $0.73 to $0.77 per quarter.
• Third quarter revenue guidance of $52.5-$54.5 billion vs. the $52.1 billion consensus estimate.
The higher third quarter revenue guidance was perceived to be the most exciting number among all of the above bullet points. Investors may listen here to the earnings conference call.
The stock is up about 5% this morning. I anticipate AAPL climbing to 230 in the coming months, then resting for quite a while. AAPL is a great stock for a high quality, buy-and-hold equity portfolio. Strong Buy.
Royal Caribbean Cruises (RCL – yield 2.2%) published one of the best quarterly-results press releases that I’ve ever read. First of all, it contained interesting drama:
“On April 1, 2019, Royal Caribbean’s Oasis of the Seas was undergoing maintenance at the Grand Bahama Shipyard when an accident involving the drydock caused two construction cranes to collapse on the stern of the ship. The damage to the ship was extensive and the ship had to go to a dock in Europe for repairs. As a result, the ship was taken out of service for almost a month and is expected to return back to service for its normally scheduled May 5, 2019 sailing. The company estimates the direct financial impact of this unusual event, net of insurance, will be a reduction of approximately $0.25 per share to the company’s full year Adjusted EPS, mostly driven by lost revenue.”
The company reported adjusted earnings per share (EPS) of $1.31, way above the $1.11 consensus estimate, and that was great news. But there was also explicit, easy-to-read detail pertaining to first quarter results, second quarter projections and full year projections. Occasionally other companies get specific about a few facets of future earnings and revenue projections, but it’s rare that the numbers are laid out so completely and concisely as Royal Caribbean did today. Instead, the reader is usually left to either do a lot of accounting math or wait for Wall Street to interpret the press release for them.
Today’s press release requires no interpretation: Royal Caribbean is thriving. The company expects to surpass Wall Street’s current revenue expectations for the rest of the year.
Profits will be impacted by the shipyard incident (the cost of which was not fully covered by insurance) and the effects of the strong U.S. dollar and oil prices. (When the dollar is strong, international companies earn lower profits, and vice versa.) Nevertheless, the company’s expectation of delivering adjusted full-year EPS in a range of $9.65-$9.85 still increases EPS by approximately 10.0% this year. (The consensus estimate had been $9.93.) Investors can expect analysts to increase 2020 earnings estimates in the coming days as they rework their numbers and issue new, bullish research reports to institutional investors.
Royal Caribbean is an undervalued, large-cap growth & income stock, and a great stock for a high quality, buy-and-hold equity portfolio. (However, investors need to understand that a cruise liner stock is cyclical, with its corporate performance ebbing and flowing during the full course of the economic cycle.) The stock is up about 5% this morning. The current run-up will most likely take RCL to the September 2018 high of 132, where the stock could rest before advancing again. Strong Buy.