Royal Caribbean reports better than expected first quarter results due to better revenues and expenses
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Royal Caribbean reports better than expected first quarter results due to better revenues and expenses
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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 2009-04-24
Royal Caribbean Cruises Ltd. (NYSE, OSE: RCL) today announced earnings for the first quarter of 2009.
Key Highlights
·First quarter 2009 net loss was $36.2 million, or $0.17 per share, compared to net income of $75.6 million, or $0.35 per share in 2008. The results were significantly better than prior guidance of a loss of between $0.30 – $0.35.
·Net Yields for the first quarter decreased 13.5% versus 2008, better than the company’s guidance of down 14% to 16%.
·Net Cruise Costs per APCD (“NCC”) declined 7.0%, better than guidance of down 4% - 6%.
·NCC excluding bunker, declined 6.8% as compared to the first quarter of 2008 and versus guidance of a decrease of 5% to 7%. The improved cost control carries forward to provide expected full year NCC excluding bunker of down 6%-8%.
·For the year, the company projects revenue yields to be toward the lower end of its previous guidance (12%) – (13%).
·The slightly reduced revenue expectations are largely offset by the improved cost outlook and are expected to result in 2009 earnings per share of around $1.35.
·As of March 31, the company had $1.1 billion in liquidity and expects to generate over $1 billion in operating cash flow in 2009.
·The company recently received commitments for financing of Royal Caribbean International’s Oasis of the Seas and signed credit agreements for Celebrity Equinox and Celebrity’s fourth Solstice-class vessel scheduled to enter service in 2011.
“Obviously, we are never happy to report a loss, but I am pleased that the full year earnings outlook has not changed materially,” said Richard D. Fain, chairman and chief executive officer. “Given the horrible economy, I am encouraged by a more stable revenue environment and I am proud that our people have been able to reduce expenses and deliver better than expected results.”
First Quarter 2009 Results
Royal Caribbean Cruises Ltd. today announced a net loss for the first quarter 2009 of $36.2 million, or $0.17 per share, compared to net income of $75.6 million, or $0.35 per share, in 2008. The results were significantly better than prior guidance of a loss between $0.30 and $0.35.
Revenues were $1.3 billion, versus $1.4 billion in the first quarter of 2008. Net Yields decreased 13.5% from the prior year. The overall revenue environment was slightly better than previous guidance due to stable close-in booking patterns. Onboard Net Yields declined consistent with the company’s prior expectations.
Fuel costs benefited from reductions in at-the-pump pricing and continued consumption reduction initiatives and were $10 million better than previous estimates. NCC declined 7.0% versus the first quarter of 2008 and excluding fuel declined 6.8%.
Revenue Environment
While consumer spending continues to be impacted by the economy, the company noted that its overall revenue environment has remained relatively consistent since the end of last year. Discounting continues to be aggressive, yet remains within the range of previous guidance and booking volumes have been sufficient for the company to achieve its forecasted occupancy levels. “In January, we noted that our booking patterns had begun to stabilize but that there was still a high level of uncertainty in the market,” said Brian J. Rice, executive vice president and chief financial officer. “Since then, we have seen consumer behavior stabilize even further. We are obviously not completely back to equilibrium yet, but the predictability of our bookings gets better every day and the risk of a dramatic deviation continues to fall.”
Second quarter Net Yields are projected to decline approximately 17% on an as-reported basis and approximately 12% on a constant dollar basis. Third quarter yields are projected to perform slightly better than the second quarter on both an as-reported and constant dollar basis, mainly due to the company’s Pullmantur brand, which will have much easier comparables from the prior year due to the earlier deterioration in the Spanish economy.
The second and third quarter Net Yields are projected to show the largest declines on an as-reported basis, as each quarter is impacted by approximately five percentage points based on current exchange rates. On a constant dollar basis, the second and third quarters are also being impacted by relatively weaker demand for the company’s seasonal premium itineraries such as Alaska.
Many of these same factors indicate that the fourth quarter will not suffer as large a revenue decline. In addition to having more favorable currency comparables and a product mix that is weighted more heavily toward relatively stronger Caribbean products, the company’s fourth quarter will be compared to last year’s fourth quarter which already included an impact from the economic downturn. Lastly, bookings for the Oasis of the Seas are extremely robust and are expected to have a significant accretive impact on yields.
For the full year, the company expects Net Yields to decline 12% - 13% on an as-reported basis and 9% - 10% on a constant dollar basis. “A later booking pattern continues to make forecasting difficult, but our visibility gets better every day,” said Rice. “We have lowered our revenue forecast marginally to take into account selected areas of weakness including a more cautious view of onboard revenue, but overall, our bookings continue to come in within the range of our earlier expectations. In today’s world, that is significant.”
Expense Guidance
Net cruise costs are forecasted to decrease 10% –12% for the year and 11% – 12% for the second quarter. Excluding fuel, net cruise costs are expected to decline 6% – 8% for the year and approximately 9% for the second quarter.
In addition to a very successful cost savings program, the company has benefited from falling fuel prices and the stronger dollar. Based on current dollar exchange rates, net cruise costs are realizing a benefit of approximately five percentage points in the second quarter and between two and three percentage points for the year. There continues to be some natural inverse correlation between revenues and expenses and the company’s cost cutting initiatives are focused on taking advantage of this correlation.
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 $574 million and $142 million of fuel expense in its full year and second quarter 2009 guidance, respectively.
The company is currently 51% hedged for the second quarter and 48% for the full year.Because of the relatively low fuel prices available, the company has recently increased its hedges in 2010 to 40% and has hedged approximately 25% of forecasted 2011 consumption.
Second Quarter 2009 Full Year 2009
Fuel Consumption 300,000 mt 1,240,000 mt
Fuel Expenses $142 Million $574 Million
Percent Hedged 51% 48%
(forward consumption)
Impact of 10% $7 Million $22 Million
change in fuel prices
Forward Guidance Summary
The company provided the following estimates for the second quarter and full year 2009. Except for earnings per share, all estimates are as compared to the second quarter and full year 2008, respectively.
Second Quarter 2009 Full Year 2009
Earnings Per Share Flat – ($0.05) Around $1.35
Capacity 3.5% 5.9%
Net Yields Approx. (17%) (12%) - (13%)
Net Cruise Costs per APCD (11%) (12%) (10%) - (12%)
Net Cruise Costs per APCD, Approx. (9%) (6%) - (8%)
excluding Fuel
Depreciation and Amortization $135 to $140 Million $560 to $565 Million
Interest Expense $65 to $70 Million $295 to $300 Million
Based on its most recent guidance, the company forecasts it will generate in excess of $1 billion in operating cash flow in 2009. “Although the economy continues to be challenging, through the resiliency of our business model and our cost discipline we continue to generate more than enough cash to maintain a solid liquidity position,” said Rice.
Liquidity and Financing Arrangements
As of March 31, 2009, liquidity was $1.1 billion, including cash and the undrawn portion of the company’s unsecured revolving credit facility. Liquidity improved by roughly $100 million during the first quarter of 2009, primarily due to the net proceeds from the sale of Galaxy to the Company’s German joint-venture, TUI Cruises.
In April, the company announced that it had obtained financing commitments for up to 80% of the cost ($1.05 billion) of Royal Caribbean International’s Oasis of the Seas, which is scheduled for delivery in the fourth quarter of 2009.
The company also entered into a credit agreement with KfW-IPEX for an unsecured term loan for up to 80% of the contract price of Celebrity Equinox (USD Equivalent of €412M), which is scheduled for delivery in the third quarter. The loan is in conjunction with an agreement to provide financing which was executed in 2005.
Also during the quarter, the company entered into an agreement with KfW-IPEX for a 12-year unsecured term loan for up to 80% of the contract price of Celebrity Solstice IV (USD Equivalent of €444M), which is scheduled for delivery in 2011. The loan will bear interest at a fixed rate of 5.82%.
Capital Expenditures and Capacity Guidance
Based on current ship orders, projected capital expenditures for 2009, 2010, 2011 and 2012, estimates are unchanged at $2.1 billion, $2.2 billion, $1.0 billion, and $1.0 billion, respectively.
Projected capacity increases for the same four years are 5.9%, 11.4%, 8.4%, and 3.0%, respectively. The company’s capacity figures have been updated for the sale of Pullmantur’s Oceanic, which was sold to its new owner during the month of April.
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.
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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