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Royal Caribbean: More than 25% Increase In Earnings



Royal Caribbean Cruises Ltd. (NYSE: RCL) today reported US GAAP and adjusted earnings for 2016 of $5.93 and $6.08 per share, respectively, resulting in more than a 25% increase in both US GAAP and adjusted earnings over 2015.

As the company enters its DOUBLE-DOUBLE year, forward bookings are at record levels and earnings are expected to be in the range of $6.90 – $7.10 per share.

KEY HIGHLIGHTS

Full Year 2016:

Net Yields were up 3.9% on a Constant-Currency basis (1.6% As-Reported).
Net Cruise Costs (“NCC”) excluding fuel were up 0.9% on a Constant-Currency basis (up 0.3% As-Reported).
US GAAP Net Income was $1.28 billion or $5.93 per share, versus $665.8 million or $3.02 per share in 2015. Last year’s figure includes an impairment charge related to Pullmantur.


Adjusted Net Income was $1.31 billion, or $6.08 per share, versus Adjusted Net Income of $1.07 billion, or $4.83 per share, in 2015. This exceeds the midpoint of both the company’s original guidance for the year and the most recent update.
Full Year 2017 Outlook:

Net Yields are expected to increase 4.0% to 6.0% on a Constant-Currency basis (3.3% to 5.3% As-Reported).
NCC excluding fuel are expected to be flat on a Constant-Currency basis (flat to (1.0%) As-Reported).
Adjusted EPS for 2017 is expected to be in the range of $6.90 – $7.10 per share.
Foreign exchange and fuel prices are creating headwinds. The above guidance is based on current rates which will cost the company $0.18 per share versus last year’s figures. Since the last update, the impact has worsened by $0.10 per share.
“As we enter our DOUBLE-DOUBLE year, we have never been so well positioned,” said Richard D. Fain, chairman and chief executive officer. “This program has done what it set out to do โ€“ bookings are at record levels, the preference our brands enjoy has never been stronger, we are on the cusp of investment grade ratings, our dividends are at an all-time high, costs have been well managed, and our guests’ satisfaction has never been better. The DOUBLE-DOUBLE program helped reinforce the mindset and discipline across our organization which has gotten us here. For that I thank every one of the men and women whose passion and efforts are driving this performance. While currency and fuel are both significant negatives at the moment, our business continues to thrive.”

FOURTH QUARTER RESULTS

US GAAP and Adjusted Net Income for the fourth quarter of 2016 were $261.1 million, or $1.21 per share and $264.7 million, or $1.23 per share, respectively, compared to US GAAP and Adjusted Net Income of $206.8 million, or $0.94 per share, for the same period last year. Constant-Currency NCC excluding fuel were down 1.9%, better than guidance, driven by operational efficiencies. Net Yields on a Constant-Currency basis increased 5.3%, below guidance due mainly to lower close-in pricing.

FULL YEAR 2016 RESULTS

US GAAP Net Income for the full year 2016 was $1.28 billion or $5.93 per share, compared to $665.8 million, or $3.02 per share in 2015. The 2015 figure includes a non-cash impairment charge related to the Pullmantur brand. Adjusted Net Income for the full year 2016 was $1.31 billion, or $6.08 per share, compared to Adjusted Net Income of $1.07 billion, or $4.83 per share, for the full year 2015. This represents more than a 25% year-over-year increase in earnings per share.

Net Yields for the full year 2016 increased 3.9% on a Constant-Currency basis versus 3.5% in 2015 marking another year of consistent yield improvement.

NCC excluding fuel were up 0.9% on a Constant-Currency basis. The average bunker price net of hedging for full year 2016 was $522 per metric ton and consumption was 1,367,000 metric tons.

During 2016, both the US dollar and the price of fuel in world markets rose. There has historically been an inverse relationship between the foreign exchange impact on our currency exposures and fuel prices, but recently global trends have caused both factors to work against the business. For 2016, the net impact of currency and fuel was a negative $0.08 per share relative to January guidance.

FULL YEAR 2017

The company’s booked position for 2017 is better than last year’s record high, and at higher rates. Strength from North American consumers is driving exceptionally positive trends for North American and European products. These trends, along with a positive outlook for Australia and a solid booked position in China for the first half of the year, are positioning the company for robust growth in 2017.

“Our global portfolio of products is demonstrating strength across virtually all key markets, positioning us to deliver strong yield growth in 2017,” said Jason T. Liberty, chief financial officer. “Strong topline growth combined with continued focus on cost management will generate another year of record setting results. Even with significant pressure from FX and fuel, we will deliver another stellar year.”

The company expects a Net Yield increase in the range of 4.0% to 6.0% on a Constant-Currency basis and 3.3% to 5.3% on an As-Reported basis for the full year.

NCC excluding fuel are expected to be flat on a Constant-Currency basis and flat to (1.0%) As-Reported.

Since our last earnings call, the dollar has continued to strengthen relative to the basket of currency exposures, and fuel prices have increased โ€“ negatively impacting 2017 earnings per share by $0.10.

Taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company currently estimates 2017 Adjusted EPS will be in the range of $6.90 – $7.10 per share.

FIRST QUARTER 2017

Constant-Currency and As-Reported Net Yields are expected to be up 4.5% to 5.0% and approximately 5.0%, respectively, in the first quarter of 2017. Robust demand in Australia for Ovation of the Seas and exceedingly strong demand for Harmony of the Seas in the Caribbean are key contributors to this yield improvement. The deconsolidation of Pullmantur is also a driver of yield growth in the quarter.

NCC excluding fuel are expected to be down approximately 4.5% on a Constant-Currency basis (down approximately 5.0% As-Reported). While operating costs for the full year show continued good expense discipline, the timing of costs between quarters varies considerably. Relative to 2016, costs are expected to be down substantially in the first half of 2017 and up in the second half. In the first six months the company will recognize a benefit from the sale of Legend of the Seas, leverage scale from new capacity and have significantly fewer dry dock days.

Based on current fuel pricing, interest rates and currency exchange rates and the factors detailed above, the company expects first quarter Adjusted EPS to be approximately $0.90 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 $178 million and $704 million of fuel expense in its first quarter and full year 2017 guidance, respectively.

Forecasted consumption is 60% hedged via swaps for 2017 and 44%, 35%, 20% and 0% hedged for 2018, 2019, 2020 and 2021, respectively. For the same five-year period, the average cost per metric ton of the hedge portfolio is approximately $508, $452, $342, $340 and $0, respectively.