Royal Caribbean Reports Q3 Results & Increases Full Year Guidance

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Royal Caribbean Group (NYSE: RCL) reported third quarter Earnings per Share (“EPS”) of $3.65 and Adjusted EPS of $3.85. These results were better than the company’s guidance due to stronger close-in demand and further strength in onboard revenue.  The company is also increasing its full year 2023 Adjusted EPS guidance to $6.58 – $6.63, driven by strong demand and continued strength in onboard revenue.

“The strength of our brands and the acceleration of consumer spending on experiences have propelled us towards another outstanding quarter and a robust 2023,” said Jason Liberty, president and CEO, Royal Caribbean Group. “Looking ahead, we see accelerating demand as we build the business for 2024. Our booked load factors are higher than all prior years and at higher rates, further supporting our trajectory towards the Trifecta goals,”  added Liberty.  “The combination of our leading brands, the best people, and the most innovative fleet and destinations, positions us exceptionally well to deliver on a lifetime of vacation experiences while creating long-term shareholder value.”

Third Quarter 2023 Results:

  • Gross Margin Yields increased 19.1% As-Reported, and Net Yields increased 16.7% in Constant-Currency (16.9% As-Reported), both compared to the third quarter of 2019.
  • Gross Cruise Costs per Available Passenger Cruise Day (“APCD”) increased 14.4% As-Reported, and Net Cruise Costs (“NCC”), excluding Fuel, per APCD increased 10.3% in Constant-Currency (10.1% As-Reported), both compared to the third quarter of 2019.
  • Total revenues were $4.2 billion, Net Income was $1.0 billion or $3.65 per share, Adjusted Net Income was $1.1 billion or $3.85 per share, Adjusted EBITDA was $1.7 billion.

Full Year 2023 Outlook:

  • Net Yields are expected to increase 12.9% to 13.4% in Constant-Currency (12.4% to 12.9% As-Reported), compared to 2019.
  • NCC, excluding Fuel, per APCD is expected to be up 7.0% to 7.5% in Constant-Currency (6.5% to 7.0% As-Reported), compared to 2019, and includes approximately 30 basis points impact due primarily to reduced APCDs on cancelled Israel and related sailings.
  • Fuel pricing and foreign exchange rates are negatively impacting EPS by $0.18, compared to prior guidance. In addition, impacted sailings related to Israel deployment is expected to impact the year by approximately $0.03.
  • Adjusted EPS is expected to be in the range of $6.58 to $6.63 per share.

Third Quarter 2023

The company reported Net Income for the third quarter of $1.0 billion or $3.65 per share compared to Net Income of $33.0 million or $0.13 per share for the same period in the prior year. The company also reported Adjusted Net Income of $1.1 billion or $3.85 per share for the third quarter compared to Adjusted Net Income of $65.8 million or $0.26 per share for the same period in the prior year. 

Gross Margin Yields increased 19.1% As-Reported, and Net Yields increased 16.7% in Constant-Currency (16.9% As-Reported) when compared to the third quarter of 2019. Third quarter revenue across North America and Europe itineraries exceeded expectations due to better close-in demand that translated into higher load factors and pricing, as well as continued strength in onboard revenue. Load factor for the third quarter was 110%.

Gross Cruise Costs per APCD increased 14.4% As-Reported, compared to 2019. NCC, excluding Fuel, per APCD increased 10.1% As-Reported and 10.3% in Constant-Currency, compared to 2019.   Lower operating expenses, as well as favorable timing, contributed to better-than-expected costs.

Revenue Environment and 2024 Outlook

Bookings remained strong throughout the third quarter, significantly exceeding 2019 levels.  Closer-in demand for 2023 sailings exceeded expectations, contributing to higher load factors at higher prices and higher onboard revenue for the third quarter.  Consumer spending onboard, as well as pre-cruise purchases, continue to significantly exceed 2019 levels driven by greater participation at higher prices. As of September 30, 2023, the Group’s customer deposit balance was at $5.0 billion.  

Demand for 2024 has continued to accelerate, with bookings significantly and consistently outpacing 2019 levels. Booked load factors and rates are higher than all prior years while the booking window has continued to extend.  The market response to the company’s new ships, existing hardware, and the expansion of Perfect Day at CocoCay, and Hideaway Beach, has been excellent and further positions the company for strong yield and earnings growth in 2024.

Fourth Quarter 2023

Net Yields are expected to be up 16.2% to 16.7% in Constant-Currency and 15.0% to 15.5% As-Reported, both compared to the fourth quarter of 2019.  Continued strong demand for the company’s vacation experiences and strength in onboard revenue contributes to increased yield expectations for the fourth quarter.

NCC, excluding Fuel, per APCD for the quarter are expected to increase 3.9% to 4.4% in Constant-Currency and 3.3% to 3.8% As-Reported, both compared to the fourth quarter of 2019.

Fuel pricing and foreign exchange rates are negatively impacting EPS by $0.15, versus previous expectations.  Impacted sailings related to Israel deployment are negatively impacting the quarter by approximately $0.03.

Based on current fuel pricing, interest and currency exchange rates and the factors detailed above, the company expects fourth quarter Adjusted EPS to be $1.05 to $1.10 per share. 

“The performance of our business continues to accelerate, driven by strong demand and excellent operational execution,” said Naftali Holtz, chief financial officer at Royal Caribbean Group. “Our formula of moderate yield growth, strong cost discipline, and moderate growth of our fleet delivers a strong financial profile and enhanced margins.”

Fuel Expense

Bunker pricing net of hedging for the third quarter was $668 per metric ton and consumption was 408,000 metric tons.

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 $300 million of fuel expense in its fourth quarter guidance at a forecasted consumption of 413,000 metric tons, which is 54% hedged via swaps. Forecasted consumption is 54%, 60%, 39%, and 3% hedged via swaps for the remainder of 2023, 2024,2025, and 2026, respectively. The annual average cost per metric ton of the hedge portfolio is approximately $576, $509, $479 and $778 for 2023, 2024, 2025, and 2026, respectively.  The higher average cost in 2026 is driven by only MGO consumption hedged that year.

The company provided the following guidance for the fourth quarter and full year 2023:   

FUEL STATISTICSFourth Quarter 2023Full Year 2023
Fuel Consumption (metric tons)413,0001,636,000
Fuel ExpensesApprox. $300 millionApprox. $1,150 million
Percent Hedged (fwd. consumption)54.0 %54.0 %
GUIDANCEAs-ReportedConstant Currency
Fourth Quarter 2023
Net Yields vs. 201915.0% to 15.5% 16.2% to 16.7%
Net Cruise Costs per APCD vs. 20198.9% to 9.4%9.4% to 9.9%
Net Cruise Costs per APCD ex. Fuel vs. 20193.3% to 3.8%3.9% to 4.4%
Full Year 2023
Net Yields vs. 2019 12.4% to 12.9%12.9% to 13.4%
Net Cruise Costs per APCD vs. 201911.6% to 12.1%12.1% to 12.6%
Net Cruise Costs per APCD ex. Fuel vs. 20196.5% to 7.0%7.0% to 7.5%
GUIDANCEFourth Quarter 2023Full Year 2023
APCDs12 million47 million
Capacity change  vs. 201915.0 %13.2 %
Depreciation and amortization$365 to $375 million$1,450 to $1,460 million
Net Interest, excluding loss on extinguishment of debt$305 to $315 million$1,245 to $1,255 million
Adjusted EPS$1.05 to $1.10$6.58 to $6.63
SENSITIVITYFourth  Quarter 2023Full Year 2023
1% Change in Currency$4 million$15 million
1% Change in Net Yields$23 million$98 million
1% Change in NCC excluding Fuel$14 million$52 million
100 basis pt. Change in SOFR$4 million$9 million
10% Change in Fuel prices$30 million$115 million
Exchange rates used in guidance calculations
GBP$1.21
AUD$0.63
CAD$0.73
EUR$1.05

Liquidity and Financing Arrangements

As of September 30, 2023, the company’s liquidity position was $3.3 billion, which includes cash and cash equivalents and undrawn revolving credit facility availability.

During the third quarter the company repaid $775 million of debt, including $500 million of its 11.50% senior secured notes due June 2025.   Also, during the third quarter, S&P upgraded the company’s credit rating to BB- with a stable outlook and Moody’s upgraded the company’s credit rating to B1 with a positive outlook.

In October, the company refinanced its $3.0 billion revolving credit facilities and $500 million term loan into new $3.5 billion multiyear revolving credit facilities. The execution of the new credit facilities demonstrates the continued support and confidence in the company’s financial position and credit improvement.  Also in late October, the company issued a redemption notice for the remaining $500 million of its 11.50% senior secured notes due June 2025. This redemption will be funded with existing liquidity.

“Our strong performance and commitment to strengthening the balance sheet will allow us to pay off over $3.5 billion of debt by the end of this year and is being favorably recognized by our financial partners and the rating agencies” said Naftali Holtz, chief financial officer, Royal Caribbean Group. “We continue to strategically invest in our future while utilizing excess cash flow to pay down debt, consistent with our Trifecta related goal of returning to investment grade metrics.”

As of September 30, 2023, the scheduled debt maturities for the remainder of 2023, 2024, 2025, and 2026 were $0.7 billion, $2.3 billion, $2.8 billion, and $2.8 billion, respectively.

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