Royal Caribbean reports first quarter results and updates 2012 guidance

24 April 2012

Royal Caribbean Cruises Ltd. today announced first quarter 2012 net income of $47.0 million, or $0.21 per share, versus $78.4 million, or $0.36 per share, in 2011. First Quarter 2012 results included a $0.01 per share mark-to-market gain on the company’s fuel option portfolio versus an $0.11 per share gain in the first quarter of 2011.

Royal Caribbean Cruises Ltd. reported better than expected first quarter results and updated its guidance for the remainder of 2012.

KEY HIGHLIGHTS

Results For the First Quarter of 2012:

Net income was $47.0 million, or $0.21 per share, versus $78.4 million, or $0.36 per share, in 2011;
Net Yields increased 7.0% on a Constant-Currency basis (+6.4% As-Reported). Net Cruise Costs (“NCC”) excluding fuel increased 5.7% on a Constant-Currency basis (+5.1% As-Reported);
Consistent with prior guidance, approximately 350 basis points of the Net Yield improvement and approximately 500 basis points of the NCC excluding fuel increase during the quarter related to previously announced deployment initiatives and changes to the company’s distribution system.
As expected, booking activity has continued to gradually improve over the last several months. Since the company’s earnings announcement on February 2, 2012, the price of oil has risen which, at current levels and net of hedging, would increase bunker expenses $0.15 per share for the year.

Second Quarter 2012:

Net Yields are expected to increase 4% to 5% on a Constant-Currency basis (+2% to + 3% As-Reported). Earnings per share are expected to be within a range of ($0.05) to $0.05.
Full Year 2012:

Net Yields are expected to increase 2% to 5% on a Constant-Currency basis (+1 to +4% As-Reported). Earnings per share are expected to be within a range of $1.80 to $2.10.
“First quarter results were satisfactory given the difficult and uncertain operating environment and we continue to see gradual improvement in the demand for our great vacations,” said Richard D. Fain, chairman and chief executive officer. Fain continued, “We did not expect the impact of the tragedy to be long term and we are seeing evidence the effects are waning.”
As announced in the company’s February 2, 2012 earnings release, Net Yields and NCC’s this year are being influenced by two unique factors:

Firstly, the company made some changes related to its International distribution system in 2011 which carry on into 2012 and will increase yields. The changes also increase expenses, but the bottom line impact is not material.

Secondly, the company has increased its commitment in certain deployment initiatives which increase revenues but also increase related expenses. For example, China represents a strategic market initiative the company is augmenting significantly.

These factors are referred to collectively throughout this release as “deployment initiatives and changes to the company’s distribution system” and unless otherwise noted, are reflected in the company’s forward guidance. Also announced in February, these factors are expected to increase Net Yields by approximately 200 basis points and NCC excluding fuel by approximately 300 basis points for the full year 2012.

First Quarter 2012 Results

Revenues improved to $1.8 billion in the first quarter of 2012 compared to $1.7 billion in the first quarter of 2011 as a result of capacity increases and yield improvements. Net Yields increased 7.0% on a Constant-Currency basis (+6.4% As-Reported). NCC excluding fuel increased 5.7% on a Constant-Currency basis (+5.1% As-Reported). Approximately 350 basis points of the Net Yield improvement and approximately 500 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 first quarter was $664 per metric ton and consumption was 342,000 metric tons.

2012 Outlook

Revenues

The company reported that overall, booking trends and pricing have been consistent with prior guidance.

Cumulative bookings since early February have been down mid single digits, although gradual improvement continues. Bookings from the United States have been running ahead of same time last year for the past four weeks.

As expected, pricing reductions within the range of the company’s previous guidance have been implemented to address booking shortfalls on certain products through the end of the third quarter. Nevertheless, Constant-Currency booked APD’s remain ahead of the same time last year in all quarters. Overall, pricing remains in line with or higher than the same time last year for all major itinerary groups with the exception of Europe.

Bookings for the fourth quarter of 2012 and for 2013 sailings remain strong, with both load factors and pricing running ahead of same time last year. In addition, the company has seen an increase in summer demand for its Pullmantur brand’s tour product.

“Despite the extraordinary disruptions to our booking patterns this year, thus far the recovery is consistent with our forecasts,” said Brian J. Rice, executive vice president and chief financial officer. Rice continued, “The Caribbean and Alaska remain healthy and as expected, a wide range of outcomes still persist regarding Europe this summer. While the marketplace is still volatile and uncertain, we are narrowing our yield and EPS ranges to reflect our best estimates at this time.”

Taking into account current booking patterns, the company has narrowed its range of guidance for full year 2012 Net Yield increases to +2% to +5% on a Constant-Currency basis and +1% to +4% on an As-Reported basis. Excluding deployment initiatives and changes to the company’s distribution system, Net Yields are projected to be flat to up 3% on a Constant-Currency basis for the full year 2012.

Expenses

For the full year, NCC excluding fuel are expected to increase approximately 5% on a Constant-Currency basis (approximately +4% As-Reported). Excluding deployment initiatives and changes to the company’s distribution system, Constant-Currency NCC excluding fuel are expected to increase approximately 2% on a comparable basis to prior year. Versus February guidance, increased sales in the Pullmantur brand’s tour product are modestly increasing full year cost estimates by 50 basis points.

Earnings Guidance

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 $1.80 to $2.10 per share.

SECOND QUARTER OUTLOOK

Revenues

For the second quarter of 2012, Net Yields are expected to increase 4% to 5% on a Constant-Currency basis (+2% to +3% As-Reported). Excluding previously referenced deployment initiatives and changes to the company’s distribution system, Constant-Currency Net Yields are projected to increase approximately 2%.

Expenses

For the second quarter of 2012, NCC excluding fuel are expected to increase 10% to 11% on a Constant-Currency basis (+8% to +9% As-Reported). Approximately half of the NCC excluding fuel increase in the quarter relates to the previously referenced deployment initiatives and changes to the company’s distribution system. NCC excluding fuel are higher than normal in the second quarter due to marketing and related cost shifts from the first quarter and increased drydock days and related maintenance.

Earnings Guidance

Taking into account current fuel pricing and currency exchange rates, and the factors detailed above, the company currently estimates that second quarter 2012 EPS will be within a range of ($0.05) to $0.05.

FUEL EXPENSE & GUIDANCE SUMMARY

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 $232 million and $923 million of fuel expense in its second quarter 2012 and full year 2012 guidance, respectively.

Forecasted consumption is now 56% hedged via swaps for the remainder of 2012 and 51%, 33% and 20% hedged for 2013, 2014 and 2015, respectively. For the same four-year period, the average cost per metric ton of the hedge portfolio is approximately $525, $545, $593 and $580, 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.

The company provided the following fuel statistics for the second quarter and full year 2012:

*excludes mark-to-market impact of fuel options.

The company provided the following additional guidance for the second quarter and full year of 2012:

Liquidity and Financing Arrangements

As of March 31, 2012, liquidity was $1.1 billion, including cash and the undrawn portion of the company’s unsecured revolving credit facilities. 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%, 1.4% and 6.9%, respectively.