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Royal Caribbean Reports Improved Second Quarter Earnings and 2010 Outlook
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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 Friday 23 July 2010
Royal Caribbean Cruises Ltd. (NYSE:RCL) today announced improved earnings for the second quarter of 2010 and provided higher guidance for the third quarter and full year 2010.
Key Highlights
-- Second quarter 2010 net income increased to $60.5 million, or $0.28
per share;
-- Business conditions have remained on target in each of the company's
main markets while improved cost control has enabled the company to
raise its earnings guidance for the year;
-- Operating costs were lower than expected due mainly to strong cost
control, energy conservation measures, expense timing and currency
fluctuations;
-- Second quarter Net Yields increased 4.9%, (5.4% on a Constant Currency
basis);
-- Second quarter Net Cruise Costs per APCD, "NCC", declined 2.8%, (2.0%
on a Constant Currency basis);
-- Net Yields are expected to increase approximately 4% in the third
quarter and 3% - 4% for the year as a whole, (7% and 4% - 5%
respectively on a Constant Currency basis);
-- NCC are expected to be down 1% for the third quarter and down
approximately 1% - 2% for the full year;
-- EPS expectation for the full year 2010 has been increased by $0.10 to
$2.25 to $2.35. Third quarter 2010 EPS is expected to be in the range
of $1.52 to $1.57.
"What a difference a year makes. It is gratifying to post another solid quarter with improvement in yields and strong cost control," said Richard D. Fain, chairman and chief executive officer. Fain continued, "Despite ongoing uncertainty with the economy, our profitability continues to improve and our booking environment continues to be remarkably stable. We remain focused on strengthening our financial position and I am encouraged about the tremendous global response to our brands."
Second Quarter 2010 Results
Royal Caribbean Cruises Ltd. today announced net income for the second quarter 2010 of $60.5 million, or $0.28 per share, compared to a net loss of $35.1 million, or ($0.16) per share, in second quarter of 2009.
Revenues improved to $1.6 billion in the second quarter of 2010 compared to $1.3 billion in the second quarter of 2009, as a result of capacity increases and yield improvements. Net Yields for the second quarter of 2010 increased 4.9% despite the impact of the stronger US Dollar.
In the second quarter of 2010, NCC decreased 2.8%, and NCC excluding fuel decreased 4.4%. Excluding currency impacts, the comparable figures would have been decreases of 2.0% and 3.4%, respectively.
Improved fuel consumption efforts resulted in significantly better fuel consumption of 318,000 metric tons during the second quarter. At-the-pump pricing (including the benefit of the company's hedging) was virtually unchanged. Altogether, the quarter's fuel expenditures were approximately $6 million better than previous calculations.
Forward Guidance
The company reported that with the exception of currency exchange rates, the current revenue environment has remained stable. Additionally, booked load factors and average per diems continue to run ahead of same time last year for the back half of the year. Third quarter 2010 Net Yields are expected to improve approximately 7% on a Constant Currency basis, or 4% on an as-reported basis. Full Year 2010 Net Yields are expected to improve approximately 4% - 5% on a Constant Currency basis and 3% - 4% on an as-reported basis.
NCC are forecasted to be down 1% for the third quarter and down 1% - 2% for the full year of 2010. On a Constant Currency basis, NCC are forecasted to be flat to up slightly for the third quarter and down 1% for the full year of 2010.
"Demand for our cruises remains on track with our earlier projections," said Brian J. Rice, executive vice president and chief financial officer. Rice continued, "The strengthening of the US Dollar will clearly result in a reduction of our reported yields, but also provides a corresponding reduction in expenses. Most importantly, our continued focus on cost controls and efficiency is driving improved earnings."
Currency Exposure
Given the recent volatility in currency exchange rates, the company is expanding its disclosures regarding currency and has defined a non-GAAP measure of "Constant Currency."
Based on current estimates for 2010, the company anticipates that 30% of its net revenues, and 20% of its NCC excluding fuel will be denominated in currencies other than US Dollar, with the British Pound and the Euro being the most significant components.
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 $170 million and $652 million of fuel expense in its third quarter 2010 and full year 2010 guidance, respectively.
The company has made additional progress over the past quarter in optimizing the fuel consumption on many of its newer itineraries, as well as fine tuning the operations on its newest hardware. The ongoing focus on fuel consumption has allowed the company to further reduce its full year 2010 consumption estimate to 1,327,000 metric tons of fuel versus the estimates the company provided in April.
The company's fuel consumption is currently 47% hedged for the third quarter of 2010. In keeping with its previously disclosed hedging strategy, forecasted consumption is now 48% hedged for the remainder of 2010, 55% hedged in 2011, 50% hedged in 2012 and 20% hedged in 2013.
Fuel Statistics
---------------
Third Quarter 2010 Full Year 2010
------------------ --------------
Fuel Consumption 350,000 mt 1,327,000 mt
Fuel Expenses $170 Million $652 Million
Percent Hedged (forward
consumption) 47% 48%
Impact of 10% change in
fuel prices $9 Million $17 Million
Forward Guidance Summary
------------------------
The company provided the following estimates for the third quarter
and full year 2010.
Third Quarter 2010
------------------
Reported Constant Currency
Net Yields Approx. 4% Approx. 7%
Net Cruise Costs per
APCD Approx. (1%) Flat to up slightly
Net Cruise Costs per
APCD, excluding Fuel Approx. (2%) Flat
Full Year 2010
--------------
Reported Constant Currency
Net Yields 3% - 4% 4% - 5%
Net Cruise Costs per
APCD (1%) - (2%) Approx. (1%)
Net Cruise Costs per
APCD, excluding Fuel (1%) - (2%) Flat - (1%)
Third Quarter 2010 Full Year 2010
------------------ --------------
EPS $1.52 - $1.57 $2.25 - $2.35
Capacity Increase 12.7% 11.5%
Depreciation and
Amortization $160 to $165 Million $640 to $650 Million
Interest Expense $78 to $83 Million $330 to $340 Million
EUR 1.29 1.29
GBP 1.53 1.53
Liquidity and Financing Arrangements
As of June 30, 2010, in addition to committed unsecured financing on its three remaining newbuilds, liquidity was $1.0 billion, including cash and the undrawn portion of the company's unsecured revolving credit facility.
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 11.5%, 7.1% and 2.0%, respectively. These capacity estimates reflect the recently announced February 2011 sale of the Celebrity Mercury.
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.
Royal Caribbean Cruises Ltd. is a global cruise vacation company that operates Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, CDF Croisieres de France, and TUI Cruises through a 50% joint venture. The company has a combined total of 39 ships in service and three under construction. It also offers unique land-tour vacations in Alaska, Asia, Australia, Canada, Europe, Latin America and New Zealand. Additional information can be found on www.royalcaribbean.com, www.celebrity.com. www.pullmantur.com, www.azamaraclubcruises.com, www.cdfcroisieresdefrance.com, www.tuicruises.com or www.rclinvestor.com.
Certain statements in this release constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "could," "estimate," "expect," "goal," "intend," "may," "plan," "project," "seek," "should," "will," and similar expressions are intended to identify these forward-looking statements. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to the following: the impact of the economic environment on the demand for cruises, the impact of the economic environment on our ability to generate cash flows from operations or obtain new borrowings from the credit or capital markets in amounts sufficient to satisfy our capital expenditures, debt repayments and other financing needs, the impact of disruptions in the global financial markets on the ability of our counterparties and others to perform their obligations to us including those associated with our loan agreements and derivative contracts, the uncertainties of conducting business internationally and expanding into new markets, changes in operating and financing costs, including changes in foreign exchange rates, interest rates, fuel, food, payroll, airfare for our shipboard personnel, insurance and security costs, vacation industry competition and changes in industry capacity and overcapacity, the cost of or changes in tax, environmental, health, safety, security and other laws and regulations affecting our business or our principal shareholders, pending or threatened litigation, enforcement actions, fines or penalties, emergency ship repairs, including the related lost revenue, the impact of ship delivery delays, ship cancellations or ship construction price increases brought about by construction faults, mechanical problems or financial difficulties encountered by shipyards or their subcontractors, negative incidents or adverse publicity concerning the cruise vacation industry including those involving unusual weather patterns or natural disasters and the health, safety and security of passengers, the international political climate, fears of terrorist and pirate attacks, armed conflict, the unavailability or cost of air service and the resulting concerns over safety and security aspects of traveling, the spread of contagious diseases, a disruption to our business related to actual or threatened natural disasters, information systems failure or similar events, our ability to differentiate our cruise brands, changes or disruptions to the travel agency industry, the loss of key personnel, strained employee relations and/or our inability to retain or recruit qualified personnel, changes in our stock price or principal shareholders, uncertainties of a foreign legal system as we are not incorporated in the United States, the unavailability of ports of call, weather, and other factors described in further detail in Royal Caribbean Cruises Ltd.'s filings with the Securities and Exchange Commission. The above examples are not exhaustive and new risks emerge from time to time. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, certain financial measures in this release constitute non-GAAP financial measures as defined by Regulation G. A reconciliation of these items can be found on our investor relations website at www.rclinvestor.com.
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Quarter Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
---- ---- ---- ----
Passenger ticket
revenues $1,159,453 $956,593 $2,241,974 $1,905,863
Onboard and other
revenues 442,244 392,422 845,373 768,754
------- ------- ------- -------
Total revenues 1,601,697 1,349,015 3,087,347 2,674,617
--------- --------- --------- ---------
Cruise operating
expenses:
Commissions,
transportation and
other 271,140 232,552 539,790 468,381
Onboard and other 124,190 112,523 215,125 195,757
Payroll and related 188,608 165,466 368,042 334,212
Food 93,850 80,913 186,497 166,316
Fuel 164,118 136,488 319,057 291,363
Other operating 244,281 237,493 482,951 461,742
------- ------- ------- -------
Total cruise
operating expenses 1,086,187 965,435 2,111,462 1,917,771
Marketing, selling
and administrative
expenses 211,795 190,593 422,843 379,750
Depreciation and
amortization
expenses 160,031 137,925 317,606 277,781
Operating Income 143,684 55,062 235,436 99,315
------- ------ ------- ------
Other income
(expense):
Interest income 1,363 1,159 2,732 2,889
Interest expense, net
of interest
capitalized (83,846) (68,327) (167,770) (147,789)
Other (expense)
income (655) (22,980) 77,595 (25,739)
---- ------- ------ -------
(83,138) (90,148) (87,443) (170,639)
------- ------- ------- --------
Net Income (Loss) $60,546 $(35,086) $147,993 $(71,324)
======= ======== ======== ========
Earnings (Loss) Per
Share:
Basic $0.28 $(0.16) $0.69 $(0.33)
===== ====== ===== ======
Diluted $0.28 $(0.16) $0.68 $(0.33)
===== ====== ===== ======
Weighted-Average
Shares Outstanding:
Basic 215,043 213,780 214,680 213,734
======= ======= ======= =======
Diluted 217,561 213,780 217,304 213,734
======= ======= ======= =======
STATISTICS
Quarter Ended Six Months Ended
June 30, June 30,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
Passengers
Carried 1,112,984 937,610 2,230,514 1,911,276
Passenger Cruise
Days 7,817,339 6,738,213 15,402,065 13,560,581
APCD 7,543,536 6,585,128 14,897,628 13,328,584
Occupancy 103.6% 102.3% 103.4% 101.7%
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
As of
------
December
June 30, 31,
2010 2009
---- ----
(unaudited)
Assets
Current assets
Cash and cash equivalents $318,820 $284,619
Trade and other receivables, net 212,204 338,804
Inventories 110,695 107,877
Prepaid expenses and other assets 223,913 180,997
Derivative financial instruments 45,516 114,094
------ -------
Total current assets 911,148 1,026,391
Property and equipment, net 15,683,297 15,268,053
Goodwill 718,399 792,373
Other assets 990,170 1,146,677
------- ---------
$18,303,014 $18,233,494
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $1,001,343 $756,215
Accounts payable 292,047 264,554
Accrued interest 105,047 147,547
Accrued expenses and other liabilities 658,389 521,190
Customer deposits 1,398,003 1,059,524
--------- ---------
Total current liabilities 3,454,829 2,749,030
Long-term debt 7,109,013 7,663,555
Other long-term liabilities 491,405 321,192
Commitments and contingencies
Shareholders' equity
Preferred stock ($0.01 par value;
20,000,000 shares authorized; - -
none outstanding)
Common stock ($0.01 par value; 500,000,000
shares authorized; 2,254 2,243
225,428,145 and 224,258,247 shares issued,
June 30, 2010 and
December 31, 2009, respectively)
Paid-in capital 3,002,106 2,973,495
Retained earnings 4,902,943 4,754,950
Accumulated other comprehensive (loss)
income (245,832) 182,733
Treasury stock (10,308,683 common shares at
cost, June 30, (413,704) (413,704)
2010 and December 31, 2009) -------- --------
Total shareholders' equity 7,247,767 7,499,717
--------- ---------
$18,303,014 $18,233,494
=========== ===========
ROYAL CARIBBEAN CRUISES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended
June 30,
--------
2010 2009
---- ----
Operating Activities
Net income (loss) $147,993 $(71,324)
Adjustments:
Depreciation and amortization 317,606 277,781
Changes in operating assets and
liabilities:
Decrease in trade and other receivables,
net 127,131 46,842
Increase in inventories (5,607) (6,312)
Increase in prepaid expenses and other
assets (37,937) (20,197)
Increase in accounts payable 23,622 17,670
Decrease in accrued interest (42,500) (47,927)
Decrease in accrued expenses and other
liabilities (13,514) (23,453)
Increase in customer deposits 320,382 131,792
Cash received on settlement of derivative
financial instruments 172,993 -
Other, net 733 37,986
--- ------
Net cash provided by operating activities 1,010,902 342,858
--------- -------
Investing Activities
Purchases of property and equipment (847,541) (323,589)
Cash (paid) received on settlement of
derivative financial instruments (7,121) 49,303
Loans and equity contributions to
unconsolidated affiliates - (181,683)
Proceeds from the sale of Celebrity Galaxy - 290,928
Other, net (8,266) (5,883)
------ ------
Net cash used in investing activities (862,928) (170,924)
-------- --------
Financing Activities
Debt proceeds 1,081,069 75,813
Debt issuance costs (36,929) (15,456)
Repayments of debt (1,168,928) (327,648)
Proceeds from exercise of common stock
options 11,377 -
Other, net 748 721
--- ---
Net cash used in financing activities (112,663) (266,570)
-------- --------
Effect of exchange rate changes on cash (1,110) 1,516
Net increase (decrease) in cash and cash
equivalents 34,201 (93,120)
Cash and cash equivalents at beginning of
period 284,619 402,878
------- -------
Cash and cash equivalents at end of period $318,820 $309,758
======== ========
Supplemental Disclosure
Cash paid during the period for:
Interest, net of amount capitalized $159,288 $171,856
======== ========
ROYAL CARIBBEAN CRUISES LTD.
NON-GAAP RECONCILING INFORMATION
(unaudited)
Gross Yields and Net Yields were calculated as follows (in thousands,
except APCD and Yields):
Quarter Ended
June 30,
--------
2010 After
adjusting
for changes
2010 in currency 2009
---- ----------- ----
Passenger ticket revenues $1,159,453 $1,168,813 $956,593
Onboard and other revenues 442,244 444,577 392,422
Total revenues 1,601,697 1,613,390 1,349,015
========= ========= =========
Less:
Commissions, transportation
and other 271,140 274,148 232,552
Onboard and other 124,190 126,948 112,523
------- ------- -------
Net revenues $1,206,367 $1,212,294 $1,003,940
========== ========== ==========
APCD 7,543,536 7,543,536 6,585,128
Gross Yields $212.33 $213.88 $204.86
Net Yields $159.92 $160.71 $152.46
Six Months Ended
June 30,
--------
2010 After
adjusting
for changes
2010 in currency 2009
---- ----------- ----
Passenger ticket revenues $2,241,974 $2,207,902 $1,905,863
Onboard and other revenues 845,373 845,041 768,754
Total revenues 3,087,347 3,052,943 2,674,617
========= ========= =========
Less:
Commissions, transportation
and other 539,790 533,049 468,381
Onboard and other 215,125 216,672 195,757
------- ------- -------
Net revenues $2,332,432 $2,303,222 $2,010,479
========== ========== ==========
APCD 14,897,628 14,897,628 13,328,584
Gross Yields $207.24 $204.93 $200.67
Net Yields $156.56 $154.60 $150.84
Gross Cruise Costs and Net Cruise Costs were calculated as follows
(in thousands, except APCD and costs per APCD):
Quarter Ended
June 30,
--------------
2010 After
adjusting
for changes
2010 in currency 2009
---- ----------- ----
Total cruise operating
expenses $1,086,187 $1,098,522 $965,435
Marketing, selling and
administrative expenses 211,795 213,389 190,593
Gross Cruise Costs 1,297,982 1,311,911 1,156,028
========= ========= =========
Less:
Commissions, transportation
and other 271,140 274,148 232,552
Onboard and other 124,190 126,948 112,523
------- ------- -------
Net Cruise Costs $902,652 $910,815 $810,953
======== ======== ========
APCD 7,543,536 7,543,536 6,585,128
Gross Cruise Costs per APCD $172.07 $173.91 $175.55
Net Cruise Costs per APCD $119.66 $120.74 $123.15
Six Months Ended
June 30,
--------
2010 After
adjusting
for changes
2010 in currency 2009
---- ----------- ----
Total cruise operating
expenses $2,111,462 $2,108,808 $1,917,771
Marketing, selling and
administrative expenses 422,843 419,644 379,750
Gross Cruise Costs 2,534,305 2,528,452 2,297,521
========= ========= =========
Less:
Commissions, transportation
and other 539,790 533,049 468,381
Onboard and other 215,125 216,672 195,757
------- ------- -------
Net Cruise Costs $1,779,390 $1,778,731 $1,633,383
========== ========== ==========
APCD 14,897,628 14,897,628 13,328,584
Gross Cruise Costs per APCD $170.11 $169.72 $172.38
Net Cruise Costs per APCD $119.44 $119.40 $122.55
Net Debt-to-Capital was calculated as follows (in thousands):
As of
December
June 30, 31,
-------- ---------
2010 2009
---- ----
Long-term debt, net of current portion $7,109,013 $7,663,555
Current portion of long-term debt 1,001,343 756,215
--------- -------
Total debt 8,110,356 8,419,770
Less: Cash and cash equivalents 318,820 284,619
Net Debt $7,791,536 $8,135,151
========== ==========
Total shareholders' equity $7,247,767 $7,499,717
Total debt 8,110,356 8,419,770
--------- ---------
Total debt and shareholders' equity 15,358,123 15,919,487
========== ==========
Debt-to-Capital 52.8% 52.9%
Net Debt 7,791,536 8,135,151
Net Debt and shareholders' equity $15,039,303 $15,634,868
=========== ===========
Net Debt-to-Capital 51.8% 52.0%
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