Royal Caribbean Reports Record Third Quarter Earnings

Royal Caribbean

Royal Caribbean reported third quarter results and narrowed its full year Adjusted EPS guidance to a range of $8.75 to $8.85 per share. This range includes a negative impact of approximately $0.10 per share due to a stronger dollar and higher fuel prices since the company’s previous guidance. The company reported third quarter US GAAP earnings of $3.86 per share and adjusted earnings of $3.98 per share, beating the mid-point of previous guidance by $0.05 per share.

KEY HIGHLIGHTS

Third Quarter 2018 results:

  • US GAAP Net Income was $810.4 million or $3.86 per share and Adjusted Net Income was $836.3 million or $3.98 per share in 2018 versus US GAAP and Adjusted Net Income of $752.8 million or $3.49 per share in 2017.
  • Gross Yields were up 1.9% in Constant-Currency (up 1.0% As-Reported).  Net Yields were up 2.6% in Constant-Currency (up 1.8% As-Reported).
  • Gross Cruise Costs per APCD increased 0.2% in Constant-Currency (down 0.2% As-Reported).  Net Cruise Costs (“NCC”) excluding Fuel per APCD were down 0.1% in Constant-Currency (down 0.4% As-Reported).

Full Year 2018 Forecast:

  • Adjusted earnings are expected to be in the range of $8.75 to $8.85 per share.  This range includes a negative impact of approximately $0.10 per share from currency and fuel and also includes Silversea’s operations.
  • Net Yields are expected to increase 4.0% to 4.5% in Constant-Currency and approximately 4.5% As-Reported.  These metrics include approximately 80 basis points from Silversea’s operations.
  • NCC excluding Fuel per APCD are expected to be up approximately 4.5% in Constant-Currency (up 4.5% to 5.0% As-Reported).  These metrics include approximately 140 basis points from Silversea’s operations.

“While 2018 is proving to be another record year, 2019 is shaping up to be even better,” said Richard D. Fain, chairman and CEO.  “I can’t recall ever starting a new year with such an exciting blueprint.  Our brands are strong; our new ships are awesome; our existing ship upgrades are powerful; our tech is exciting; our people are psyched; and our other new products are opening new horizons.”

THIRD QUARTER 2018

US GAAP Net Income for the third quarter was $810.4 million or $3.86 per share and Adjusted Net Income was $836.3 million or $3.98 per share, beating the mid-point of the guidance by $0.05 per share.  Last year, both US GAAP and Adjusted Net Income were $752.8 million or $3.49 per share.

Gross Yields were up 1.9% and Net Yields were up 2.6% in Constant-Currency, exceeding prior guidance due to strong close-in demand for our core products and better onboard revenues.

Gross Cruise Costs per APCD increased 0.2% in Constant-Currency.  NCC excluding Fuel per APCD were down 0.1% in Constant-Currency, slightly higher than guidance, driven by timing.

Bunker pricing net of hedging for the third quarter was $538.57 per metric ton and consumption was 338,700 metric tons.

FULL YEAR 2018

The company expects full year Adjusted EPS to be in the range of $8.75 to $8.85 per share.  This guidance now includes Silversea’s operations, which, as previously disclosed, will be accounted for on a three month lag.  The transaction closed on July 31st 2018, therefore the results corresponding to August and September will be consolidated in the fourth quarter.  As an ultra-luxury brand, Silversea’s revenues and expenses are both higher than the rest of the company.  This will have an impact on some of the individual components of the income statement, but overall, Silversea’s financial results are not expected to be material to our 2018 Adjusted Earnings per Share.

Since our last guidance, foreign exchange and fuel prices have continued to negatively impact the company’s results.  Based on current rates, we expect these factors to cost the company approximately $0.10 per share in 2018 relative to the company’s previous guidance.  Since the beginning of the year, currency and fuel have impacted our expected earnings for both 2018 and 2019 by approximately $0.55 per share.

The company expects a Net Yield increase of 4.0% to 4.5% in Constant-Currency and  approximately 4.5% As-Reported.  These metrics include an approximately 80 basis point uplift from Silversea’s operations.  In addition, the company’s third quarter outperformance together with booking strength for the fourth quarter are contributing to the increase in the full year Net Yield guidance.

NCC excluding Fuel per APCD are expected to be up approximately 4.5% in Constant-Currency and up 4.5% to 5.0% As-Reported.  These metrics include approximately 140 basis points from Silversea’s operations.  This updated guidance also reflects an increase in our costs related to the acceleration of technology investments.

Taking into account current fuel pricing, interest and currency exchange rates, and the factors detailed above, the company estimates 2018 Adjusted EPS will be in the range of $8.75 to $8.85 per share.

“2018 is shaping up to be another year of yield growth and record earnings,” said Jason T. Liberty, executive vice president and CFO.  “As we enter 2019, we are particularly enthusiastic about the new projects that complement our core business such as Perfect Day at Cococay, the new terminal in Miami and Excalibur.  These investments will help us deliver even greater vacations while generating higher yields and better returns.”

FOURTH QUARTER 2018

Constant-Currency Net Yields are expected to be up 6.5% to 7.0%.  This metric includes approximately 350 basis points from Silversea’s operations.

NCC excluding Fuel in Constant-Currency are expected to increase 6.0% to 6.5%, which includes approximately 500 basis points from Silversea’s operations.  This updated guidance also reflects an increase in our costs related to technology investments.

Based on current fuel pricing, interest and currency exchange rates and the factors detailed above, the company expects fourth quarter Adjusted EPS to be in the range of $1.45 to $1.50 per share.

2019 OUTLOOK

The company is experiencing strong early booking trends for 2019. Booked load factors and rates are higher than same time last year across all core products while the booking window has continued to extend.  The market response to Symphony of the Seas, Azamara Pursuit and Celebrity Edge has been excellent.  While these ships are being introduced this year, 2019 will see the benefit of their full year of operations in various markets as they sail in both North America and Europe.  These three vessels together with Spectrum of the Seas, which will be introduced in June 2019 in Shanghai, are supporting a solid outlook for 2019.  While still early in the booking cycle, the view for 2019 is encouraging and the company expects another year of solid yield and earnings growth.  Regarding Silversea’s consolidation, as mentioned above, while the bottom line impact in the near term is expected to be immaterial, we expect higher average yields for the company and higher costs per berth.

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 $191 million and $706 million of fuel expense in its fourth quarter and full year 2018 guidance, respectively.

Forecasted consumption is 54% hedged via swaps for the remainder of 2018 and 51%, 39%, 18% and 5% hedged for 2019, 2020, 2021 and 2022, respectively.  For the same five-year period, the annual average cost per metric ton of the hedge portfolio is approximately $434, $362, $379, $426 and $632, respectively.

The company provided the following fuel statistics for the fourth quarter and full year 2018:

FUEL STATISTICS

Fourth Quarter 2018

Full Year 2018

Fuel Consumption (metric tons)

354,900

1,349,600

Fuel Expenses

$191 million

$706 million

Percent Hedged (fwd. consumption)

54%

54%

The company provided the following guidance for the fourth quarter and full year 2018:

GUIDANCE

As-Reported                   

Constant-Currency

Fourth Quarter 2018

Net Yields

5.5% to 6.0%

6.5% to 7.0%

Net Cruise Costs per APCD

5.0% to 5.5%

Approx. 5.5%

Net Cruise Costs per APCD ex. Fuel

Approx. 6.0%

6.0% to 6.5%

Full Year 2018

Net Yields

Approx. 4.5%

4.0% to 4.5%

Net Cruise Costs per APCD

Approx. 4.0%

3.5% to 4.0%

Net Cruise Costs per APCD ex. Fuel

4.5% to 5.0%

Approx. 4.5%

GUIDANCE

Fourth Quarter 2018

Full Year 2018

Capacity change

9.7%

4.0%

Depreciation and Amortization

$278 to $283 million

$1,032 to $1,037 million

Interest Expense, net

$88 to $93 million

$298 to $303 million

Adjusted EPS

$1.45 to $1.50

$8.75 to $8.85

SENSITIVITY

Fourth Quarter 2018

1% Change in Currency

$4 million

1% Change in Net Yields

$19 million

1% Change in NCC ex Fuel

$10 million

100 Basis pt. change in LIBOR

$6 million

10% Change in Fuel prices

$10 million

Exchange rates used in guidance calculations

GBP

$1.29

AUD

$0.71

CAD

$0.77

CNH

$0.14

EUR

$1.14

LIQUIDITY AND FINANCING ARRANGEMENTS

As of September 30, 2018, liquidity was $1.5 billion, including cash and the undrawn portion of the company’s unsecured revolving credit facilities, net of our outstanding commercial paper borrowings.  The company noted that scheduled debt maturities (excluding commercial paper) for the remainder of 2018, 2019, 2020, 2021 and 2022 are $0.3 billion, $1.6 billion, $1.3 billion, $0.8 billion and $1.4 billion, respectively.

CAPITAL EXPENDITURES AND CAPACITY GUIDANCE

Based upon current ship orders, projected capital expenditures for full year 2018, 2019, 2020, 2021 and 2022 are $4.7 billion, $2.6 billion, $3.0 billion, $2.9 billion and $3.4 billion, respectively.  Capacity changes for 2018, 2019, 2020, 2021 and 2022 are expected to be 4.0%, 8.6%, 4.2%, 8.6% and 8.0%, respectively.  These figures do not include potential ship sales or additions that we may elect to make in the future.

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