Royal Caribbean Cruises Ltd. today reported "better than anticipated" third quarter results and raised adjusted earnings guidance to approximately $4.80 per share, mostly driven by strong momentum in the Caribbean.
The company also announced a $500 million share repurchase program, and a non-cash write down of $399.3 million associated with the Pullmantur brand.
Looking ahead to 2016, the current order book is better than same time last year for both volume and price.
Third Quarter 2015 results:
Net Yields were up 5.1% on a Constant-Currency basis (up 0.2% As-Reported).
Net Cruise Costs ("NCC") excluding fuel were down 1.8% on a Constant-Currency basis (down 4.4% As-Reported).
Adjusted Net Income was $628.1 million, or $2.84 per share, versus $492.9 million, or $2.20 per share, in 2014. This excludes the non-cash impairment charge described below.
The company recorded non-cash impairment charges totaling $399.3 million in the third quarter. These charges relate to Pullmantur's goodwill, the brand's trademark and trade names, and a reduction in the value of select vessels in the Pullmantur fleet.
US GAAP Net Income was $228.8 million or $1.03 per share, which includes the impairment charges. US GAAP Net Income in 2014 was $490.2 million, or $2.19 per share.
Full Year 2015 forecast:
Net Yields are expected to increase approximately 3.5% on a Constant-Currency basis (down approximately 1.0% As-Reported).
NCC excluding fuel are expected to be flat to down 1% on a Constant-Currency basis (down 3.5% to 2.5% As-Reported).
Adjusted EPS is expected to be approximately $4.80 per share.
"Our business trajectory keeps us solidly on the path to the Double-Double," said Richard D. Fain, chairman and chief executive officer. "Even though we are disappointed to have such a large non-cash charge related to Pullmantur, we are enthusiastic about the overall strength of our brands and our ability to continue our dramatic profitability growth."
SHARE REPURCHASE PROGRAM
The company also announced today that it expects to implement an orderly program to repurchase up to $500 million of its common stock. The company plans to begin with an accelerated share repurchase transaction of $200 million that should be completed by the end of January 2016. Future transactions could include open market purchases or additional accelerated share repurchases. The company expects to complete the program by year-end 2016.
"This share repurchase program, in combination with another year of over 40% earnings growth, and the recent 25% increase in the dividend, exemplify our ongoing commitment to improving shareholder returns, one of our core financial objectives," said Jason T. Liberty, chief financial officer.
PULLMANTUR IMPAIRMENT CHARGES
The Company conducts an analysis of the carrying value of its assets on a regular basis. In past quarters, management has acknowledged the weakness in the economies of Latin America, and the impact of this weakness on Pullmantur. Unfortunately, the economic outlook in Latin America has deteriorated further in recent months and, as a result, the brand is re-focusing on its core market of Spain. These factors triggered the company to record a non-cash impairment charge of $399.3 million, primarily related to its goodwill, its trademark and trade names and a reduction in the carrying value of select vessels in the Pullmantur fleet. This eliminates all intangibles at Pullmantur.
As the company right-sizes the brand, restructuring and related charges of approximately $5 to $10 million associated with the new strategy will be booked in future quarters. In addition, as previously anticipated, the company will be eliminating the two-month reporting lag for the Pullmantur brand. This will start in the first quarter of 2016, and is expected to be immaterial to the company's results.
All the adjustments will be excluded from our key metrics for transparency and comparability purposes.
"The right-sizing of the Pullmantur fleet will better balance supply with demand for the brand in the Spanish market," said Richard D. Fain, chairman and chief executive officer. "These changes should put Pullmantur on a more successful course for the future."
THIRD QUARTER RESULTS
Net Yields on a Constant-Currency basis increased 5.1% during the quarter, approximately 130 basis points better than the mid-point of previous guidance. Close-in Caribbean and European demand and strong performance in Asia more than off-set further weakness in Latin America. Onboard Revenue Yield increased 10% mainly driven by strong retail and beverage sales and demand for VOOM, the fastest internet at sea.
Adjusted Net Income for the third quarter of 2015 was $628.1 million, or $2.84 per share, compared to Adjusted Net Income of $492.9 million, or $2.20 per share, in the third quarter of 2014. US GAAP Net Income for the third quarter 2015 was $228.8 million or $1.03 per share, which includes $399.3 million in non-cash impairment charges related to the Pullmantur brand. As a means of comparison, US GAAP Net Income for the third quarter 2014 was $490.2 million or $2.19 per share.
Constant-Currency NCC excluding fuel decreased 1.8%. Bunker pricing net of hedging for the third quarter was $590 per metric ton and consumption was 339,000 metric tons.
FULL YEAR 2015
The company raised full year Adjusted EPS guidance to approximately $4.80 per share. Constant-Currency Net Yields are expected to increase approximately 3.5%, back in line with the mid-point of January guidance. NCC excluding fuel are expected to be flat to down 1% on a Constant-Currency basis.
Year-over-year, the company has made a number of structural changes which are driving a stronger fourth quarter. The growth of the Asia-Pacific region, including Quantum of the Seas sailing in China, boosts earnings in the typically lighter shoulder season. The addition of new capacity, with Anthem of the Seas joining the fleet, efforts to drive incremental Onboard Revenue, and a continued focus on cost efficiencies also contribute to a stronger end of the year.
"As we have reiterated throughout the year, we remain ahead on both pricing and volume versus same time last year," said Jason T. Liberty, chief financial officer. "While Latin America is stressing yields in the fourth quarter, strong year-over-year pricing in the Caribbean, and the addition of capacity in China, will solidify this fourth quarter as the best in our company's history."
Taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company expects 2015 Adjusted EPS to be approximately $4.80 per share.
FOURTH QUARTER 2015
Constant-Currency Net Yields are expected to be up in the range of 4.5% to 5.0% in the fourth quarter of 2015, and NCC excluding fuel are expected to be down approximately 4.0%.
Based on current fuel pricing, interest rates and currency exchange rates and the factors detailed above, the company expects fourth quarter Adjusted EPS to be approximately $0.90 per share.
The company is experiencing good early booking trends for 2016. Booked load factors and APDs are higher than same time last year and the booking window has extended. Management is excited by the 2016 introduction of Harmony of the Seas starting in Europe next summer and adding Ovation of the Seas to its Chinese platform to take advantage of the strong reception this class of ships has received there. While still early in the booking cycle, the view for 2016 is encouraging, and the company expects another year of solid yield and earnings growth.