Royal Caribbean Cruises Ltd. (NYSE: RCL) today reported GAAP and adjusted earnings of$1.06 and $1.09, respectively, up over 25% from last year and better than expectations. Full year adjusted earnings are also expected to be up 25% in the range of $6.00 to $6.10, down $0.20 from the midpoint of earlier guidance due to a negative impact of approximately $0.27 related to currency and fuel.
Yields and costs for the year are also performing generally as expected. The sale of 51% of the Pullmantur Group announced in May was completed at the end of July. Consequently, Pullmantur’s results will no longer be consolidated in the company’s accounts. Since Pullmantur’s yields and costs are lower than the fleet average, this change has the effect of increasing the company’s yields and costs metrics for 2016.
Second Quarter 2016 results:
- Net Yields were up 1.1% on a Constant-Currency basis (down 0.5% As-Reported), in-line with previous guidance.
- Net Cruise Costs (“NCC”) excluding fuel were up 1.9% on a Constant-Currency basis (up 1.5% As-Reported), in-line with guidance.
- US GAAP Net Income was $229.9 million or $1.06 per share, versus $185.0 million, or $0.84 per share in 2015.
- Adjusted Net Income was $235.2 million, or $1.09 per share, versus $185.0 million, or $0.84 per share in 2015, better than guidance due to lower than expected fuel expense.
Full Year 2016 forecast:
- Net Yields are expected to increase in the range of 4.0% to 4.5% on a Constant-Currency basis (up approximately 2.0% As-Reported) with the increase from previous guidance driven primarily by the deconsolidation of the Pullmantur Group.
- NCC excluding fuel are expected to be up approximately 1.0% on a Constant-Currency basis (up flat to up 1.0% As-Reported), unchanged from previous guidance. This includes a slight increase in this cost metric driven by the deconsolidation of the Pullmantur Group.
- Adjusted EPS is expected to be in the range of $6.00 to $6.10 per share, a $0.20 decrease from the mid-point of the company’s previous guidance, driven by a negative $0.27 impact of currency and fuel rates, partially offset by the better than expected second quarter.
“Our business remains strong and we continue to improve our return profile,” said Richard Fain, chief executive officer. “This keeps us solidly on our path towards the Double-Double.“
SECOND QUARTER RESULTS
US GAAP Net Income for the second quarter 2016 was $229.9 million or $1.06 per share, compared to $185.0 million or $0.84per share in 2015. Adjusted Net Income for the second quarter of 2016 was $235.2 million, or $1.09 per share, up over 25% versus the same quarter last year. The outperformance for the quarter was primarily driven by better than anticipated fuel expense.
Net Yields on a Constant-Currency basis increased 1.1%, in-line with guidance. The portfolio of global destinations performed as expected. Constant-Currency NCC excluding fuel increased 1.9%, also in-line with previous guidance.
Bunker pricing net of hedging for the second quarter was $511 per metric ton and consumption was 346,000 metric tons.
FULL YEAR 2016
The company updated full year Adjusted EPS guidance to a range of $6.00 to $6.10. This is a $0.20 decrease at the midpoint versus previous guidance due to a $0.27 negative impact from currency and fuel rates, of which approximately $0.14 is related to weakness in the British Pound following the Brexit vote. Lower than expected fuel expense in the second quarter partially offset the full year impact of weaker foreign currencies and rise in fuel prices.
As previously announced, the company sold 51% of its stake in Pullmantur and formed a Joint Venture with Springwater Capital. This sale results in the deconsolidation of the Pullmantur Group. Consistent with our other joint ventures, results from this venture will now be accounted for under equity method accounting. An immaterial gain related to the sale has been excluded from the company’s earnings guidance.
The company’s booked position for the remainder of 2016 remains strong, similar to last year’s record levels. Looking further ahead, the company’s booked position for the next twelve months is also strong, up on both rate and volume, versus same time last year. Net Yields on a Constant-Currency basis are expected to increase in the range of 4.0% to 4.5%, driven primarily by the deconsolidation of the Pullmantur Group. Continued strength for North American products are helping offset weakness in the Eastern Mediterranean and in Shanghai.
NCC excluding fuel are expected to be up approximately 1.0% for the year. This includes a slight increase in this cost metric driven by the deconsolidation of the Pullmantur Group offset by a slight decrease in costs from the rest of the fleet.
“While there are always puts and takes in our key markets, our portfolio is performing as expected, our booked position remains strong, and our newbuilds are entering their markets to great fanfare,” said Jason T. Liberty, chief financial officer. “These factors are driving another year of record earnings.”
Taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company expects 2016 Adjusted EPS to be in the range of $6.00 to $6.10 per share.
THIRD QUARTER 2016
Constant-Currency Net Yields are expected to be up approximately 2.0% in the third quarter of 2016. The year-over-year improvement is primarily driven by the deconsolidation of the Pullmantur Group.
NCC excluding fuel are expected to be down approximately 1.5% on a Constant-Currency basis. This includes a small increase relating to deconsolidation of the Pullmantur Group.
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 $3.10 per share.
FUEL EXPENSE AND SUMMARY OF KEY GUIDANCE STATS
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 $187 million and $725 million of fuel expense in its third quarter and full year 2016 guidance, respectively.
Forecasted consumption is 64% hedged via swaps for the remainder of 2016 and 60%, 45%, 36% and 20% hedged for 2017, 2018, 2019 and 2020, respectively. For the same five-year period, the average cost per metric ton of the hedge portfolio is approximately $535, $505, $452, $342 and $340, respectively.