Royal Caribbean reports a 55% increase in Third Quarter Earnings
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Royal Caribbean reports a 55% increase in Third Quarter Earnings
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Category: Worldwide - Industry economy -
Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2010-10-27
ROYAL CARIBBEAN REPORTS A 55% INCREASE IN THIRD
QUARTER EARNINGS, INCREASES 2010 OUTLOOK AND COMMENTS ON 2011
Royal Caribbean Cruises Ltd. (NYSE, OSE: RCL) today announced a 55% year-over-year increase in third quarter earnings, provided higher earnings guidance for full year 2010 and commented on 2011.
Key Highlights
For the third Quarter:
Third quarter 2010 net income increased 55% year-over-year to $356.8 million, or $1.64 per share.
Third quarter close-in bookings were stronger than expected while operating costs and fuel consumption were lower.
Third quarter Net Yields increased 5.2%, (7.2% on a Constant Currency basis).
Third quarter Net Cruise Costs excluding fuel per APCD (“NCC ex. fuel”) declined 2.8%, (1.2% on a Constant Currency basis).
Looking to the rest of 2010:
Net Yields are expected to increase approximately 4%-5% in the fourth quarter (approximately 5% on a Constant Currency basis) and 4%-5% for the year on both Constant Currency and as reported basis.
NCC are expected to be down approximately 1% for the full year.
EPS expectation has been increased for the full year 2010 to $2.43 to $2.47. Fourth quarter 2010 EPS is expected to be in the range of $0.08 to $0.12 after taking into account two incidents that cost the company about $0.05.
Looking to Next Year:
While it is early in the booking cycle, 2011 Yields are trending positively in all four quarters and the company expects yield increases in 2011 comparable to 2010. As a result, early 2011 EPS modeling indicates that next year will set a new EPS record for the company.
“We continue to characterize demand for our brands as steady and solid and the strength of our third quarter results is certainly a validation of that,” said Richard D. Fain, chairman and chief executive officer. Fain continued, “Profitability momentum moving into 2011 is also quite strong with our newest vessels performing exceptionally well and our management team controlling costs very effectively. The economy is still tough, but even facing such headwinds our outlook is remarkably encouraging.”
Third Quarter 2010 Results
Royal Caribbean Cruises Ltd. today announced net income for the third quarter 2010 of $356.8 million, or $1.64 per share, compared to net income of $230.4 million, or $1.07 per share, in the third quarter of 2009. This represents a 55% increase in earnings year-over-year in the third quarter.
Revenues improved to $2.1 billion in the third quarter of 2010 compared to $1.8 billion in the third quarter of 2009, as a result of capacity increases and yield improvements. Net Yields for the third quarter of 2010 increased 5.2% (7.2% on a Constant Currency basis).
In the third quarter of 2010, NCC decreased 2.3%, and NCC excluding fuel decreased 2.8%. Excluding currency impacts, the comparable figures would have been decreases of 1.1% and 1.2%, respectively.
Continued fuel conservation efforts resulted in better than expected fuel usage of 342,400 metric tons during the third quarter. At-the-pump pricing (including the benefit of the company’s hedging) was in-line with earlier calculations at $481 per metric ton. Altogether, the quarter’s fuel expenditures were approximately $5 million better than previous calculations.
Forward Guidance
The company reported that the current revenue environment has remained stable and continues to be characterized as slowly improving. Additionally, booked load factors and average per diems continue to run ahead of same time last year for the remainder of the year. Fourth quarter 2010 Net Yields are expected to improve approximately 5% on a Constant Currency basis, or approximately 4%-5% on an as-reported basis. Full Year 2010 Net Yields are expected to improve approximately 4%-5% on both Constant Currency and as-reported basis.
Owning primarily to timing, NCC are forecasted to be up approximately 2% in the fourth quarter, or up 3% on a constant currency basis. On a constant currency basis, full year NCC guidance remains unchanged at down approximately 1%. On an as reported basis full year NCC are down approximately 1%.
Operational disruptions on Pullmantur’s Pacific Dream and the Celebrity Century have negatively impacted the company’s fourth quarter EPS guidance by approximately $0.05.
Looking to 2011, while recognizing it is still too early to provide definitive guidance, the company reported that early indications are encouraging. At today’s exchange rates, the company expects full year 2011 Net Yields to increase by a similar proportion to 2010. The company also noted that its business is seasonal and that the biggest yield declines caused by the recession impacted the second and third quarters more than they impacted the first and fourth quarters. As a result, the company expects that the most meaningful yield recovery in 2011 will occur correspondingly during those same two summer quarters. First quarter 2011 Net Yields are currently expected to improve 2%-4%. Taking into account these revenue trends as well as current fuel prices and exchange rates, the company expects 2011 EPS to exceed its previous record of $3.26 per share.
With only one ship delivery in 2011, capital commitments are dropping by more than 50% from 2010’s levels. This slowing capacity investment combined with improving profitability is expected to generate meaningful free cash flow (cash from operating activities less capital commitments).
Fuel Expense
The company does not forecast fuel prices and its cost calculations are based on current at-the-pump prices net of hedging impacts. Based on today’s fuel prices the company has included $167 million and $651 million of fuel expense in its fourth quarter 2010 and full year 2010 guidance, respectively.
The ongoing focus on fuel conservation has allowed the company to further reduce its full year 2010 consumption estimate to 1,318,000 metric tons of fuel versus the estimate of 1,327,000 metric tons the company provided in July. Forecasted consumption is now 50% hedged for the remainder of 2010, 58% hedged in 2011, 55% hedged in 2012 and 22% hedged in 2013.
Forward Guidance Summary
The company provided the following estimates for the fourth quarter and full year 2010.
Fuel Statistics
Fourth Quarter 2010
Full Year 2010
Fuel Consumption
350,000 mt
1,318,000 mt
Fuel Expenses
$167 Million
$651 Million
Percent Hedged (forward consumption)
50%
50%
Impact of 10% change in fuel prices
$9 Million
$9 Million
Guidance Estimates
Fourth Quarter 2010
Reported
Constant Currency
Net Yields
4%-5%
Approx. 5%
Net Cruise Costs per APCD
Approx. 2%
Approx. 3%
Net Cruise Costs per APCD, excluding Fuel
Approx. 4%
4%-5%
Full Year 2010
Reported
Constant Currency
Net Yields
4%-5%
4%-5%
Net Cruise Costs per APCD
Approx. (1%)
Approx. (1%)
Net Cruise Costs per APCD, excluding Fuel
Approx. (1%)
Flat-(1%)
Fourth Quarter 2010
Full Year 2010
EPS
$0.08-$0.12
$2.43-$2.47
Capacity Increase
8.1%
11.0%
Depreciation and Amortization
$162 to $167 Million
$642 to $647 Million
Interest Expense, net
$85 to $90 Million
$330 to $335 Million
Exchange rates used in forecast calculations
EUR
1.40
1.40
GBP
1.57
1.57
Liquidity and Financing Arrangements
As of September 30, 2010, in addition to committed unsecured financing on its three remaining newbuilds, liquidity was $1.3 billion, including cash and the undrawn portion of the company’s unsecured revolving credit facility.
Delivery of Royal Caribbean International’s highly anticipated Allure of the Seas is scheduled for Thursday, October 28, 2010. The Allure of the Seas will sail year-round Caribbean itineraries from Port Everglades, FL and begins revenue service on December 1st.
Capital Expenditures and Capacity Guidance
Based on current ship orders, projected capital expenditures for 2010, 2011 and 2012 are $2.2 billion, $1.0 billion, and $1.0 billion, respectively.
Capacity increases for the same three years are 11.0%, 7.5% and 1.8%, respectively.
Conference Call Scheduled
The company has scheduled a conference call at 10 a.m. Eastern Daylight Time today to discuss its earnings. This call can be heard, either live or on a delayed basis, on the company’s investor relations web site at www.rclinvestor.com.
Terminology
Available Passenger Cruise Days (“APCD”)
APCDs are our measurement of capacity and represent double occupancy per cabin multiplied by the number of cruise days for the period.
Constant Currency
We believe Net Yields and Net Cruise Costs are our most relevant non-GAAP financial measures. However, a significant portion of our revenue and expenses are denominated in currencies other than the United States dollar. Because our reporting currency is the United States dollar, the value of these revenues and expenses can be affected by changes in currency exchange rates. Although such changes in local currency prices is just one of many elements impacting our revenues and expenses, it can be an important element. For this reason, we also monitor Net Yields and Net Cruise Costs “as if” the current periods' currency exchange rates had remained constant with the comparable prior periods' rates, or on a “Constant Currency” basis.
It should be emphasized that the use of Constant Currency is primarily used for comparing short-term changes and/or projections. Over the longer term, changes in guest sourcing and shifting the amount of purchases between currencies significantly change the impact of the purely currency based fluctuations.
Gross Cruise Costs
Gross Cruise Costs represent the sum of total cruise operating expenses plus marketing, selling and administrative expenses.
Gross Yields
Gross Yields represent total revenues per APCD.
Net Cruise Costs
Net Cruise Costs represent Gross Cruise Costs excluding commissions, transportation and other expenses and onboard and other expenses. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Costs to be the most relevant indicator of our performance. We have not provided a quantitative reconciliation of projected Gross Cruise Costs to projected Net Cruise Costs due to the significant uncertainty in projecting the costs deducted to arrive at this measure. Accordingly, we do not believe that reconciling information for such projected figures would be meaningful.
Net Debt-to-Capital
Net Debt-to-Capital is a ratio which represents total long-term debt, including current portion of long-term debt, less cash and cash equivalents (“Net Debt”) divided by the sum of Net Debt and total shareholders' equity. We believe Net Debt and Net Debt-to-Capital, along with total long-term debt and shareholders' equity are useful measures of our capital structure.
Net Revenues
Net Revenues represent total revenues less commissions, transportation and other expenses and onboard and other expenses.
Net Yields
Net Yields represent Net Revenues per APCD. We utilize Net Revenues and Net Yields to manage our business on a day-to-day basis as we believe that it is the most relevant measure of our pricing performance because it reflects the cruise revenues earned by us net of our most significant variable costs, which are commissions, transportation and other expenses and onboard and other expenses. We have not provided a quantitative reconciliation of projected Gross Yields to projected Net Yields due to the significant uncertainty in projecting the costs deducted to arrive at this measure. Accordingly, we do not believe that reconciling information for such projected figures would be meaningful.
Occupancy
Occupancy, in accordance with cruise vacation industry practice, is calculated by dividing Passenger Cruise Days by APCD. A percentage in excess of 100% indicates that three or more passengers occupied some cabins.
Passenger Cruise Days
Passenger Cruise Days represent the number of passengers carried for the period multiplied by the number of days of their respective cruises.
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