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Royal Caribbean reports Q2 results, updates 2015 guidance

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MIAMI, FL – Royal Caribbean Cruises Ltd today reported a 26% increase in second quarter earnings and said it expects full year earnings to be almost 40% above last year.

KEY HIGHLIGHTS

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MIAMI, FL – Royal Caribbean Cruises Ltd today reported a 26% increase in second quarter earnings and said it expects full year earnings to be almost 40% above last year.

KEY HIGHLIGHTS

Overall, the year will be another solid step towards the Double-Double. Commercially, the business continues to perform as expected and the biggest drivers of our increased guidance are better foreign exchange and fuel rates.

Second Quarter 2015 results:

• Net Yields were up 4.2% on a Constant-Currency basis (down 0.2% As-Reported), modestly better than guidance mostly driven by strength in the Caribbean and China.

• Net Cruise Costs (“NCC”) excluding fuel were up 3.4% on a Constant-Currency basis (down 0.1% As-Reported), better than guidance mainly due to timing.

• Adjusted Net Income of $185.0 million, or $0.84 per share, versus $146.7 million, or $0.66 per share in 2014.

• US GAAP Net Income was $185.0 million or $0.84 per share, versus $137.7 million, or $0.62 per share in 2014.
Full Year 2015 forecast:

• Net Yields are expected to increase in the range of 2.9% to 3.9% on a Constant-Currency basis (down 1.1% to 0.1% As-Reported).

• NCC excluding fuel are expected to be better than flat on a Constant-Currency basis (down approximately 2.5% As-Reported), including some increased investment in marketing activities.

• Adjusted EPS is expected to be in the range of $4.65 to $4.75 per share, a $0.15 increase from the mid-point of the company’s previous guidance, driven by beneficial currency and fuel rates.
“The Double-Double introduced demanding but achievable targets for our organization, and I am proud of our company’s focus on delivering this program,” said Richard D. Fain, chairman and chief executive officer. “We continue to focus on the strength of our brands to drive these improving results.”

SECOND QUARTER RESULTS

Adjusted Net Income for the second quarter of 2015 was $185.0 million, or $0.84 per share, compared to Adjusted Net Income of $146.7 million, or $0.66 per share, in the second quarter of 2014, representing a 26% increase over the same quarter last year. US GAAP Net Income for the second quarter 2015 was $185.0 million or $0.84 per share, compared to $137.7 million or $0.62 per share in 2014.
While currency and fuel were the biggest drivers of the earnings increase versus guidance, Net Yields on a Constant-Currency basis also increased 4.2%. Yields were better than expected, mainly driven by close-in pricing in the Caribbean and China. Constant-Currency NCC excluding fuel increased 3.4%, which is 110 basis points better than guidance, mainly due to the timing of shipboard projects.
Bunker pricing net of hedging for the second quarter was $599 per metric ton and consumption was 338,000 metric tons.

FULL YEAR 2015

The company has updated full year Adjusted EPS guidance to a range of $4.65 to $4.75. The $0.15 increase versus April guidance is driven by beneficial currency and fuel rates. Better than expected performance in the Caribbean and China in Q2, and a modest increase in costs are essentially offsetting each other and are neutral to earnings. The cost increase in the second half of the year is for some additional marketing activities focused on 2016.

Constant-Currency Net Revenue Yields are now expected to increase in the range of 2.9% to 3.9%, versus previous guidance of 2.5% to 4.0%, and Net Cruise Costs excluding fuel are expected to be better than flat, versus previous guidance of flat to down 1%.

Bookings since the April earnings call have been healthy and the company continues to be booked ahead of last year in both load factor and APD. A solid Caribbean environment is more than off-setting softness on Latin American sailings associated with our Pullmantur brand.

Taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company expects 2015 Adjusted EPS to be in the range of $4.65 to $4.75 per share.
“Momentum in the Caribbean continues at a solid pace, and our strong booked position in the third and fourth quarters gives us confidence as we move through the second half of 2015,” said Jason T. Liberty, chief financial officer. “The trajectory of our brands is firmly on course for another record year of earnings, with healthy trends extending into the first quarter of 2016.”

While it is too early to provide a detailed picture for 2016, first quarter bookings are running well ahead of last year at higher prices, with improvements in the Caribbean continuing at a robust pace.

THIRD QUARTER 2015

Constant-Currency Net Yields are expected to be up in the range of 3.5% to 4.0% in the third quarter of 2015. NCC excluding fuel are expected to be down 1.5% to 1.0% on a Constant-Currency basis.
Based on current fuel pricing, interest rates and currency exchange rates and the factors detailed above, the company expects third quarter Adjusted EPS to be approximately $2.70 per share.

FUEL EXPENSE AND SUMMARY OF KEY GUIDANCE STATS

Fuel Expense

The company does not forecast fuel prices, and its fuel cost calculations are based on current at-the-pump prices, net of hedging impacts. Based on today’s fuel prices the company has included $210 million and $818 million of fuel expense in its third quarter and full year 2015 guidance, respectively.

Forecasted consumption is 53% hedged via swaps for the remainder of 2015 and 65%, 60%, 40% and 10% hedged for 2016, 2017, 2018 and 2019, respectively. For the same five-year period, the average cost per metric ton of the hedge portfolio is approximately $630, $538, $501, $462 and $417, respectively.

The company provided the following fuel statistics for the third quarter and full year 2015:

FUEL STATISTICS Third Quarter 2015 Full Year 2015
Fuel Consumption (metric tons) 340,000 1,367,000
Fuel Expenses $210 million $818 million
Percent Hedged (fwd consumption) 48% 53%
Impact of 10% change in fuel prices $7.8 million $13.9 million

In summary, the company provided the following guidance for the third quarter and full year of 2015:

GUIDANCE As-Reported Constant-Currency
Third Quarter 2015
Net Yields (0.7%) to (0.2%) 3.5% to 4.0%
Net Cruise Costs per APCD Approx. (6.0%) Approx. (4.0%)
Net Cruise Costs per APCD
excluding Fuel (3.8%) to (3.3%) (1.5%) to (1.0%)

Full Year 2015
Net Yields (1.1%) to (0.1%) 2.9% to 3.9%
Net Cruise Costs per APCD Approx. (6.0%) Approx. (4.0%)
Net Cruise Costs per APCD
excluding Fuel Approx. (2.5%) Better than flat

Third Quarter 2015 Full Year 2015
Capacity Increase 6.7% 5.4%
Depreciation and Amortization $209 to $214 million $830 to $835 million
Interest Expense, net $60 to $70 million $260 to $270 million
Adjusted EPS Approx. $2.70 $4.65 to $4.75

1% Change in Currency $5 million $8 million
1% Change in Net Yield $19 million $34 million
1% Change in NCC x fuel $9 million $17 million
1% Change in LIBOR $10 million $23 million

Exchange rates used in guidance calculations
Current – July Previous – April
GBP $1.55 $1.46
CAD $0.79 $0.80
AUD $0.74 $0.77
BRL $0.32 $0.33
CNY $0.16 $0.16

LIQUIDITY AND FINANCING ARRANGEMENTS

As of June 30, 2015, liquidity was $1.0 billion, including cash and the undrawn portion of the company’s unsecured revolving credit facilities. The company noted that scheduled debt maturities for the remainder of 2015, 2016, 2017, 2018 and 2019 are $0.5 billion, $0.9 billion, $0.9 billion, $2.0 billion, and $0.6 billion, respectively.

CAPITAL EXPENDITURES AND CAPACITY GUIDANCE

Based upon current ship orders, projected capital expenditures for full year 2015, 2016, 2017, 2018 and 2019 are $1.6 billion, $2.3 billion, $0.5 billion, $2.4 billion and $1.3 billion, respectively.
Capacity increases for 2015, 2016, 2017, 2018 and 2019 are expected to be 5.4%, 6.7%, 2.4%, 4.6% and 6.4%, respectively. These figures do not include potential ship sales or additions that we may elect to make in the future.

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