Royal Caribbean Cruises Ltd today reported second quarter results and updated its guidance for the remainder of 2012.
Results For the Second Quarter of 2012:
* Net loss was ($3.6 million), or ($0.02) per share, versus net income of $93.5 million, or $0.43 per share, in 2011. Results include a ($0.05) per share mark-to-market loss on the company’s WTI fuel option portfolio;
* Net Yields increased 4.5% on a Constant-Currency basis (+1.8% As-Reported). Net Cruise Costs (“NCC”) excluding fuel increased 8.3% on a Constant-Currency basis (+5.8% As-Reported);
* Since the company’s April guidance, the strengthening of the U.S. Dollar and decreases in fuel pricing have essentially offset one another. Business demand remains solid in the Caribbean and Asia, but larger than anticipated discounting has been required in Europe which has resulted in a one percentage point decline to the midpoint of the company’s Constant-Currency Net Yield expectations for the year. The company has been able to offset more than half of the yield declines through additional spending reductions.
Third Quarter 2012:
Net Yields are expected to decrease between (1%) and (2%) on a Constant-Currency basis and approximately (5%) on an As-Reported basis. Earnings per share are expected to be within a range of $1.40 to $1.50.
Full Year 2012:
Net Yields are expected to increase 2% to 3% on a Constant-Currency basis and be between flat and up 1% on an As-Reported basis. Earnings per share are expected to be within a range of $1.70 to $1.80.
“The steady drumbeat of negative news emanating out of Europe is certainly having an impact,” said Richard D. Fain, chairman and chief executive officer. Fain continued, “As a result, we are seeing pluses and minuses in the different geographical markets – North America is holding up reasonably well; Asia is a big plus; but Europe is a pretty consistent minus. Overall we have seen about a 100 basis point drop in our yield projections, but we expect to offset over half of this decline with lower spending.”
Second Quarter 2012 Results
Royal Caribbean Cruises Ltd. today announced a second quarter 2012 net loss of ($3.6) million, or ($0.02) per share, versus income of $93.5 million, or $0.43 per share, in the second quarter of 2011. Second Quarter 2012 results included a ($0.05) per share mark-to-market loss on the company’s fuel option portfolio. As previously reported, the impact of the tragedy in Italy seems to be particularly meaningful in the second and third quarters.
Net Yields increased 4.5% on a Constant-Currency basis (+1.8% As-Reported). NCC excluding fuel increased 8.3% on a Constant-Currency basis (+5.8% As-Reported). Approximately 280 basis points of the Net Yield improvement and approximately 600 basis points of the NCC increases during the quarter relate to previously announced deployment initiatives and changes to the company’s distribution system.
Bunker pricing net of hedging for the second quarter was $699 per metric ton and consumption was 340,000 metric tons.
As the company has previously commented, the strengthening of the U.S. Dollar has historically been inversely correlated to bunker pricing. Since the April guidance, the strengthening of the U.S. Dollar has reduced the company’s full year outlook by approximately $0.13 per share. This outlook reduction has been largely offset by the reduction in bunker pricing that occurred during this same time period. The net effect of these currency and fuel price changes is essentially neutral for the company’s full year earnings outlook. However, the mark-to-market loss on the options is expected to cost the company a ($0.05) per share charge at current prices versus prior guidance.
The company reported that overall, booking trends have continued to normalize and are now running at levels comparable to prior year’s activity. Larger than expected discounting has been required for the European season which has lowered the midpoint of the company’s Constant-Currency Net Yield expectations for the year by approximately one percentage point from the April guidance.
“It is hard to distinguish how much of the pressure in Europe is connected to the Costa Concordia incident and how much is due to the economic roller coaster,” said Brian J. Rice, executive vice president and chief financial officer. Rice continued, “Our sense is that the former is no longer having a major impact on our bookings especially amongst experienced guests. However, the timing of the incident left a big gap during our peak booking period and filling that gap is disrupting our normal booking patterns.”
For the full year of 2012, Net Yields are expected to increase 2% to 3% on a Constant-Currency basis and be between flat and up 1% on an As-Reported basis. The expected effect of deployment initiatives and changes to the company’s distribution system to Net Yields remains unchanged at +200 basis points for the full year.
The company’s cost outlook for the year has improved and is expected to offset more than half of the decline in revenue. For the full year, NCC excluding fuel are expected to increase approximately 4% on a Constant-Currency basis (approximately 2% As-Reported). Excluding deployment initiatives and changes to the company’s distribution system, Constant-Currency NCC excluding fuel are expected to increase less than 1% on a comparable basis to prior year.
Taking into account current fuel pricing and currency exchange rates, and the factors detailed above, the company currently estimates 2012 earnings will be in the range of $1.70 to $1.80 per share.
THIRD QUARTER OUTLOOK
For the third quarter of 2012, Net Yields are expected to decrease between (1%) and (2%) on a Constant-Currency basis and approximately (5%) on an As-Reported basis. Excluding previously referenced deployment initiatives and changes to the company’s distribution system, Constant-Currency Net Yields are projected to decrease approximately (3%).
For the third quarter of 2012, NCC excluding fuel are expected to increase approximately 3% on a Constant-Currency basis (flat to 1% As-Reported). Approximately ¾ of the NCC excluding fuel increase in the quarter relates to the previously referenced deployment initiatives and changes to the company’s distribution system.
Taking into account current fuel pricing and currency exchange rates, and the factors detailed above, the company currently estimates that third quarter 2012 EPS will be within a range of $1.40 to $1.50.
FUEL EXPENSE & GUIDANCE SUMMARY
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 $213 million and $899 million of fuel expense in its third quarter 2012 and full year 2012 guidance, respectively.
Forecasted consumption is now 58% hedged via swaps for the remainder of 2012 and 54%, 38%, 22% and 7% hedged for 2013, 2014, 2015 and 2016, respectively. For the same five-year period, the average cost per metric ton of the hedge portfolio is approximately $526, $568, $619, $595 and $582, respectively.
In addition to the above-mentioned fuel hedges, the company also has fuel options to further protect against escalating fuel prices. The company currently has options expiring in 2013 at a strike price of $90 bbl that cover an estimated 9% of 2013 consumption. At today’s bunker prices, the company’s outstanding hedges (swaps and options) are “in the money” by about $70 million. About half the value will relate to the remainder of this year and half to next year. The amounts beyond next year are immaterial at today’s rates.
Liquidity and Financing Arrangements
As of June 30, 2012, liquidity was $1.1 billion, including cash and the undrawn portion of the company’s unsecured revolving credit facilities. Currently, liquidity is approximately $1.6 billion. The company has utilized a portion of the accordion feature on its revolving credit facility due July 2016 which increased the size of the facility from $875 million to $1.1 billion. The company has also closed on a €365 million, delayed draw (June 2013) five-year unsecured bank loan facility. The combination of these actions provide liquidity of approximately $600 million and has been done primarily as part of the company’s refinancing strategy to prepare for bond maturities in 2013 and 2014.
Additionally, the company has committed unsecured financing on its newbuilds. The company noted that debt maturities for 2012, 2013, and 2014 are $600 million, $1.6 billion, and $1.9 billion, respectively.
Capital Expenditures and Capacity Guidance
Based on current ship orders, projected capital expenditures for 2012, 2013, 2014 and 2015 are $1.3 billion, $600 million, $1.1 billion and $1.0 billion, respectively.
Capacity increases for 2012, 2013, 2014 and 2015 are 1.5%, 1.1%, 1.0% and 6.6%, respectively.