Royal Caribbean Q3 Results

Wednesday, November 04, 2009

Royal Caribbean Cruises Ltd. (NYSE:RCL) announced earnings for the third quarter of 2009 and provided guidance for the fourth quarter and full year.
Key Highlights
•    Third quarter 2009 net income was $230.4 million, or $1.07 per share, compared to net income of $411.9 million, or $1.92 per share in 2008.
•    The results were better than the company's most recent guidance of $0.95 to $1.00 per share, driven primarily by the strength of close-in bookings.
•    Net Yields for the third quarter decreased 16.5% versus 2008, somewhat better than the company's previous guidance of down approximately 18%.
•    Net Cruise Costs per APCD ("NCC") for the third quarter decreased 10.0% versus 2008. NCC, excluding bunker for the third quarter declined 3.8% versus 2008.
•    The company projects net yields to decline 7% to 8% in the fourth quarter and approximately 14% for the full year.
•    Earnings per share ("EPS") estimates for the full year are expected to be approximately $0.70 and are expected to be a slight loss in the fourth quarter.
•    The company took delivery of the widely anticipated Oasis of the Seas on October 28th.

"Like many other travel companies, we saw more strength than we expected during our peak season but have been experiencing more pricing pressure on some of our traditionally softer fall season sailings," said Richard D. Fain, chairman and chief executive officer. Fain continued, "Overall though, the business environment is largely unchanged and stable. We expect the yield deficit to continue to improve in the fourth quarter and we remain optimistic that 2010 will bring year-over-year yield improvement."

Third Quarter 2009 Results
Royal Caribbean Cruises Ltd. today announced net income for the third quarter 2009 of $230.4 million, or $1.07 per share, compared to net income of $411.9 million, or $1.92 per share, in 2008.

Revenues were $1.8 billion, versus $2.1 billion in the third quarter of 2008. Net Yields decreased 16.5% from the prior year or 14.5% after adjusting for year over year changes in currency. Net yields improved approximately one and a half percentage points from the company's previous guidance, mainly as a result of the strength of close-in bookings. As was announced during the second quarter, the H1N1 virus had a negative impact on yields of approximately two percentage points during the third quarter.

NCC decreased 10.0% from the prior year or 8.8% after adjusting for changes in currency. NCC, excluding fuel, declined 3.8% from the prior year or 2.2% after adjusting for changes in currency.

Fuel costs were in-line with the company's previous calculations. Third quarter pricing averaged $460 per metric ton and consumption was 318.2 thousand metric tons.

Revenue Environment
The company reported that booking volume since mid-September was up about 40% compared to same period last year, with favorable comparison for cruises departing both in the fourth quarter and next year. "While the pricing environment is still not what we'd like it to be, we're pleased to see solid growth in our order book and a rapidly diminishing gap in year-over-year booked volume comparisons," said Brian J. Rice, executive vice president and chief financial officer.

The company expects fourth quarter Net Yields to decline approximately 7% to 8%, slightly worse than its previous forecast of down mid-single digits. "During the fourth quarter, we historically source a disproportionate number of our guests from Florida," said Rice. "As a consequence of the weaker economy in the state, we do not anticipate the same strength of close-in bookings in the fourth quarter as we saw in the third quarter."

The company noted that its new ships, Royal Caribbean's Oasis-class and Celebrity's Solstice-class vessels, continue to command significant premiums and volumes. Oasis of the Seas will enter service on December 1, 2009; Celebrity Solstice and Celebrity Equinox are already in service, with Celebrity Eclipse debuting in April of 2010.

For the full year the company maintained its projection for Net Yields to decline approximately 14%, or 12% to 13% after adjusting for changes in currency.

The company affirmed its earlier outlook for year-over-year improvements in net revenue yields in the first quarter and for the full year of 2010.

Expense Guidance
NCC are forecasted to decrease approximately 10% for the fourth quarter and the full year. After adjusting for changes in currency, NCC are forecasted to decline approximately 12% in the fourth quarter and 8% to 9% for the full year.

Excluding fuel, NCC are expected to decline 7% to 8% for the fourth quarter and approximately 6% to 7% for the full year.

While it is early in the annual planning process, the company did comment that it anticipates flat NCC, excluding fuel, for full year 2010. Efficiencies on the new hardware, sustainable cost reductions completed in 2008 and 2009 and having attained initial critical mass in its international operations are all factors that will support this goal.

Fuel Expense
The company does not forecast fuel price changes and its cost calculations are based on current at-the-pump prices net of hedging impacts. Based on today's fuel prices the company has included $158 million and $596 million of fuel expense in its fourth quarter and full year 2009 guidance, respectively.

The company's fuel consumption is currently 40% hedged for the fourth quarter. In keeping with its previously disclosed hedging strategy, forecasted consumption is now 50% hedged in 2010, 50% hedged in 2011 and 10% hedged in 2012.

Liquidity and Financing Arrangements
As of September 30, 2009, liquidity was $1.1 billion, including cash and the undrawn portion of the company's unsecured revolving credit facility.

Capital Expenditures and Capacity Guidance
Based on current ship orders, projected capital expenditures for 2009, 2010, 2011 and 2012, estimates are unchanged at $2.1 billion, $2.2 billion, $1.0 billion, and $1.0 billion, respectively.

Capacity increases for the same four years are 5.1%, 11.6%, 8.8% and 2.7%, respectively.

The company took delivery of the Royal Caribbean International's Oasis of the Seas on October 28th. The vessel was funded with a 12-year amortizing unsecured facility that matures in 2021. Oasis of the Seas' launch continues to be one of the most widely anticipated and reported vessel deliveries of all time and the company expects an acceleration of media coverage and buzz when the vessel arrives in Florida on November 11th.

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