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(Royal Caribbean earnings report updated with analyst commentary.)



) --

Royal Caribbean

(RCL) - Get Royal Caribbean Cruises Ltd. Report

topped Wall Street's earnings expectations for the recent quarter but the cruise ship operator forecast weaker-than-expected 2011 guidance.

Royal Caribbean booked fourth-quarter profits of $42.7 million, or 20 cents per share, a huge improvement over year-earlier earnings of $3.4 million, or 2 cents per share. Results easily beat analysts' consensus call for a profit of $26.9 million, or 13 cents per share.

Revenue came in 10.3% higher year-over-year at $1.6 billion, but analysts had been looking for the top-line figure to come in at $1.64 billion.

The cruise ship operator forecast 2011 earnings-per-share to come in between $3.25 and $3.45, and between 10 and 15 cents for the current quarter.

That outlook disappointed Wall Street, which had expected Royal Caribbean to book 2011 EPS of $3.31 and first-quarter EPS of 26 cents.

Investors bid Royal Caribbean shares 4.6% lower on Thursday amid much heavier-than-normal trading. Nearly 11 million shares changed hands with two hours left in the trading session, compared with their average daily volume of just 2.3 million.

Hudson Securities analyst Robert LaFleur maintained a buy rating and 12-month price target of $58 following the report.

He noted that Royal Caribbean, unlike rival


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(CCL) - Get Carnival Corporation Report

, hedges its fuel exposure.

Royal Caribbean said that while it does not forecast fuel prices its cost calculations are based on current at-the-pump prices net of hedging impacts. Based on those prices it included $168 million and $705 million of fuel expense in its first quarter 2011 and full year 2011 guidance, respectively.

LaFleur commented that while Royal Caribbean's top-line results came in below his estimates, expenses were better than expected.

He called Royal Caribbean's earnings "a mixed bag."

"Without disruptions, yields were in line. Cost controls were solid, but some expenses may have leaked into

the first quarter. The

fourth-quarter EPS appears to have gotten a boost from unusual swings in other income and interest income as well, raising quality of earnings questions. The below-Street

first-quarter would be problematic on the surface, however the above-Street view for the full-year may temper somewhat," the analyst noted.

LaFleur said he expected volatility in Royal Caribbean's share price "as these forces play out," but said he expects that "an early sell-off tempers itself by session's end."

On Dec. 21 cruise ship peer Carnival reported a 28.5% jump in year-over-year profits reflecting an improving economy and lower fuel costs.

Carnival, which recently announced a 150% spike to its quarterly cash dividend, forecast 2011 earnings per share in a range of $2.90 to $3.10. Analysts' consensus call was for EPS of $2.92. Carnival's fiscal first quarter earnings were forecast in a range of 15 cents to 19 cents per share, down from fiscal 2010 first quarter EPS of 22 cents.

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HSBC Global Research analyst Ben O'Toole recently initiated coverage of Carnival and Royal Caribbean. He opened coverage on Carnival with an overweight rating and $51 price target. The analyst gave Royal Caribbean a neutral rating and $43 price target.

O'Toole noted that demand for cruises has been improving, especially in Europe, and that the operators are further helped by slow supply growth.

"We are also optimistic that costs can be controlled and that, as both operators increase in size, further efficiencies can be achieved, leading to margin expansion," he noted.

Carnival shares were 2.3% lower in premarket trading Thursday.


Vanguard Consumer Discretionary

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iShares Dow Jones U.S. Consumer Services Sector Index Fund

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, exchange-traded funds that count Royal Caribbean and Carnival among their holdings, both traded up, gaining 0.9% and 0.6%, respectively.

-- Written by Miriam Marcus Reimer in New York.

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