Royal Caribbean Cruises has reported net income of $40.6 million or $0.66 per share on revenues of $301.7 million for its third quarter ended October 1, 1993, compared to net income of $30.7 million or $0.59 per share on revenues of $286.8 million for the same quarter in 1992.

Operating income for the third quarter was $52.4 million compared to $51.1 million for the same quarter in 1992 despite a small decrease in available passenger cruise days due to the drydocking of the Sovereign of the Seas.

Operating expenses were $249.8 million for this year's third quarter compared to $235.7 million last year.

Richard Glasier, Sr. Vice President of Finance, attributed the result to yield improvement and lower interest expense.

Glasier said that the five percent increase in revenues on a quarter-over-quarter basis was due to yield improvement and a higher mix of air/sea passengers since the line had two ships in Europe this year compared to one last year. However, the higher mix of air/sea passengers also meant increased costs, Glasier pointed out.

Expressed as a percentage of revenues, operating income for the third quarter 1993 was 17.4 percent compared to 17.8 percent in the same quarter last year.

Operating expenses were 82.6 percent compared to 82.2 percent last year.

Net income was 13.5 percent compared to 10.7 percent last year.

Glasier said that the company has achieved a significant reduction in interest expenses. In improving the capital structure of the company, Glasier said that the debt-to-capitalization ratio has been reduced from 75 percent to 53 percent.

Glasier also said that the company has renegotiated improvements in its loan packages. "Our lenders believe in the company and are seeing that our long-term strategies are paying off," Glasier noted.

Nine Months

During the first nine months of 1993, Royal Caribbean Cruises has increased revenues 12 percent, operating income 21 percent and net income 67 percent, compared to the same period last year. However, the company also benefitted from additional capacity for the full term in 1993 since the Majesty of the Seas entered service in May of 1992.

"One-third of our costs are variable and two-thirds are fixed," Glasier explained. "A little increase in revenue on the top has a tremendous flow-through to the bottom line," he added.

Net income for 1993's first nine months was $88.3 million or $1.52 per share on revenues of $849 million compared to net income of $52.8 million or $1.02 per share on revenues of $757.4 million for the prior year.

Expressed as a percentage of revenues, net income was 10.4 percent for the first nine months of 1993 compared to 6.9 percent in 1992.

Operating income increased to $131.8 million in 1993 from $109.3 million in 1992. Expressed as a percentage of revenues, operating income was 15.5 percent of revenues for the first nine months of 1993 compared to 14.4 percent in 1992.

Operating expenses increased as well to $717.3 million this year compared to $648 million last year. But expressed as a percentage of revenues, operating expenses declined to 84.5 percent compared to 85.6 percent last year.

Earnings per share for the first nine months of 1993 were $1.52 compared to $1.02 for the same period last year.

Outperforming Expectations

At press time Royal Caribbean Cruises (Royal Caribbean Cruise Line) traded on the New York Stock Exchange (RCL) at $27 compared to a 365-day high­ low of $27 1/4- $15 5/8.

Analysts have predicted EPS in the range of $1.68 for 1993; $1.80 for 1994; and $2.00 for 1995.

A 12-month price target of $28 set this month by a major financial firm has already nearly been exceeded.

Outlook

Trading at 15 times 1994 EPS estimates of $1.80. Royal Caribbean Cruises is trading at a 13 percent discount to Carnival Cruise Lines' estimated 1994 PIE ratio of 17.

Analysts believe the discount to Carnival is justified in the short term because RCCL will not introduce new capacity until 1995 after which they expect strong profit growth for the company.

In the meantime, as industry supply is absorbed, and as the economy picks up, RCCL is expected to improve yields further which translates into earnings increases.