Royal Caribbean Cruises Ltd. today reported 2013 results and provided guidance for 2014.
Full Year 2013:
• Adjusted EPS was $2.40, $0.05 above the top end of the company's previous guidance. Strong close-in demand for Europe and Asia sailings coupled with continued strong performance in onboard revenue drove the improvement. Adjusted Net Income was $530.6 million versus $432.2 million in 2012.
• Net yields increased 3.2% on a Constant-Currency basis (2.7% As Reported).
• Net Cruise Costs ("NCC") excluding fuel increased 1.8% on a Constant-Currency basis (2.1% As Reported).
• The company recorded restructuring and related charges of $56.9 million for the full year, including $43.0 million in the fourth quarter. These charges relate to the previously announced global restructuring actions and the pending sale of Pullmantur's non-core businesses.
• US GAAP EPS and net income were $2.14 per share and $473.7 million, respectively, which include the $56.9 million of restructuring and related charges described in this release.
During the last earnings call, we stated that the company was seeking to divest Pullmantur's non-core businesses to facilitate Pullmantur's ability to focus on its cruise business and Latin America.
In December, the company reached an agreement to sell these non-core businesses, the closing of which is subject to customary conditions. This disposition, combined with the previously announced global restructuring actions, resulted in a charge of $43.0 million in the fourth quarter ($56.9 million for the full year).
Looking forward, the company's guidance and results for 2014 and beyond will exclude these businesses from its non-GAAP measures to provide better comparability.
For example, Pullmantur's non-core businesses have been excluded from Net Yield for 2013 and 2014 in calculating year-over-year Net Yield growth for 2014. However, in order to ensure comparability with respect to prior guidance, the results of Pullmantur's non-core businesses have been included in the 2013 key statistics.
Further details and reconciliations are available in the supporting financial tables.
• Adjusted EPS for 2014 is expected to be in the range of $3.20 to $3.40 per share.
• Net Yields are expected to increase 2% to 3% on a Constant-Currency basis (Approx. 2% As Reported).
• NCC excluding fuel are expected to be flat to slightly down on a Constant-Currency basis (Approx. flat As Reported).
• The remaining restructuring and related charges are expected to be approximately $23 million in 2014.
• In the fourth quarter of 2014, Royal Caribbean International will take delivery of QUANTUM OF THE SEAS, its first newbuild since 2010. In addition, TUI Cruises, the company's German joint venture will take delivery of its first newbuild this spring.
"Six months ago we said we thought we had reached an inflection point and these figures clearly bear that out," said Richard D. Fain, chairman and chief executive officer. "It has been a challenging year, but the fact that we have achieved our guidance from a year ago nicely demonstrates the strength of our business. Despite the lingering impact of 2013's negative media coverage on 2014, the year – and what it portends for future returns – is looking highly promising."
FOURTH QUARTER RESULTS
Adjusted Net Income for the fourth quarter of 2013 was $50.0 million, or $0.23 per share, compared to Adjusted Net Income of $21.1 million, or $0.10 per share, in the fourth quarter of 2012. US GAAP net income for the fourth quarter 2013 was $7.0 million or $0.03 per share. Net Yields on a Constant-Currency basis increased 3.8% during the quarter.
Ticket revenue outperformed expectations as strong close-in demand continued for Europe and Asia itineraries. Onboard revenue yields increased 8.0% year-over-year on a Constant-Currency basis.
Constant-Currency NCC excluding fuel increased 1.8%. Bunker pricing net of hedging for the fourth quarter was $686 per metric ton and consumption was 342,200 metric tons. Currency rates for the quarter were in line with guidance.
During the third quarter, the company recorded restructuring and related charges of $12.2 million and said that it expected additional charges in the fourth quarter.
During the fourth quarter, the company recorded further charges of $43.0 million related to the previously announced global restructuring actions and the pending sale of Pullmantur's non-core businesses. The company expects to incur approximately $23 million of charges associated with these initiatives in 2014.
FULL YEAR 2013 RESULTS
Adjusted Net Income for the full year 2013 was $530.6 million, or $2.40 per share, compared to Adjusted Net Income of $432.2 million, or $1.97 per share, for the full year 2012. This represents a 22% year-over-year increase in Adjusted EPS. US GAAP net income for the full year 2013 was $473.7 million, or $2.14 per share.
Net Yields for the full year of 2013 increased 3.2% on a Constant-Currency basis. Onboard revenue yields were up 7.6%.
NCC excluding fuel were up 1.8% on a Constant-Currency basis, which was in line with guidance.
The average bunker price net of hedging for full year 2013 was $687 per metric ton and consumption was 1,344,700 metric tons. To put this in a historical perspective, Fuel costs per APCD were in line with 2008 levels, as the company has offset a 14% increase in fuel prices by reducing the rate of consumption.
SALE OF PULLMANTUR NON-CORE BUSINESSES
In the fourth quarter, the company reached an agreement to sell Pullmantur's non-core businesses, the closing of which is subject to customary conditions.
These non-core businesses include a land tour company and a Spanish travel agency. With Pullmantur's increasing focus on Latin America, the strategic importance of these businesses to Pullmantur has diminished.
While these non-core businesses are immaterial to the company's bottom line, they do impact individual components of the income statement. As described above, in an effort to provide greater transparency into the core cruise business and to facilitate comparability, the company will separate out these operations in its key statistics going forward. This will make period-over-period comparisons easier and more meaningful. For example, Adjusted EPS for 2014 will be shown excluding these businesses.
"This transaction is consistent with our on-going efforts to address underperforming assets," said Jason T. Liberty, chief financial officer. Liberty continued, "It reflects our determination to improve shareholder value."
FULL YEAR 2014
Bookings during the fourth quarter were on par with historical levels, and the company is experiencing a typical WAVE season. Booked load factors are up year-over-year for the second, third and fourth quarter, and flat for the first quarter. Average per diems are ahead of same time last year in all four quarters. The company expects a Net Yield increase of 2% to 3% on a Constant-Currency basis and approximately 2% on an As Reported basis for the full year.
"While the Caribbean continues to feel pricing pressure, strong demand for our other itineraries has more than compensated. In particular, load factors and pricing are up significantly for sailings in Europe and Asia. The overall result is increasing yields despite the remaining overhang from last year's industry events," said Liberty.
NCC excluding fuel are expected to be flat to slightly down on a Constant-Currency basis and approximately flat on an As Reported basis – in spite of inflationary pressures, rising insurance costs and continued investment in the product and marketing.
Taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company currently estimates 2014 Adjusted EPS will be in the range of $3.20 to $3.40 per share.
First quarter yields are expected to be approximately flat on a Constant-Currency basis (down approximately 2% As Reported). The first quarter of 2014 is the most difficult comparable due to the timing of last year's negative media storm and its effect on Caribbean sailings. Yields in the second, third and fourth quarters are expected to be higher due to easier comparables and strong performance on Europe and Asia itineraries.
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 $242 million and $944 million of fuel expense in its first quarter and full year 2014 guidance, respectively.
Forecasted consumption is 55% hedged via swaps for 2014 and 47%, 24% and 5% hedged for 2015, 2016 and 2017, respectively. For the same four-year period, the average cost per metric ton of the hedge portfolio is approximately $613, $631, $604 and $640, respectively.