Royal Caribbean Cruises today reported 2015 results and provided guidance for 2016.  Continuing on its Double-Double trajectory, the company’s adjusted earnings for 2015 were $4.83 per share – up 42% over 2014, and are expected to further increase to  $5.90 – $6.10 in 2016.

KEY HIGHLIGHTS

Full Year 2015:

•    Net Yields were up 3.5% on a Constant-Currency basis (down 1.0% As-Reported).
•    Net Cruise Costs (“NCC”) excluding fuel were down 0.6% on a Constant-Currency basis (down 3.2% As-Reported).
•    Adjusted Net Income was better than guidance at $1.07 billion, or $4.83 per share, versus Adjusted Net Income of $755.7 million, or $3.39 per share, in 2014. US GAAP Net Income was $665.8 million or $3.02 per share, versus $764.1 million, or $3.43 per share in 2014.

Full Year 2016 Outlook:

•    Net Yields are expected to increase 2.0% to 4.0% on a Constant-Currency basis (in the range of flat to up 2% As-Reported).
•    NCC excluding fuel are expected to be up 1% or less on a Constant-Currency basis (up 0.5% or less As-Reported).
•    Adjusted EPS for 2016 is expected to be in the range of $5.90 – $6.10 per share.
•    In the second quarter of 2016, Royal Caribbean International will take delivery of Ovation of the Seas, third in the highly successful Quantum class of vessels.  Also debuting during the second quarter is Harmony of the Seas, third in the groundbreaking Oasis class. Splendour of the Seas will leave the Royal Caribbean fleet in April.  During the summer, TUI Cruises, the company’s German joint venture, will take delivery of its third new build, Mein Schiff 5.  

“Our core brands are firing on all cylinders, our new ships are performing exceptionally well and our costs are well controlled.  This is driving 40%+ earnings growth in two consecutive years,” said Richard D. Fain, chairman and chief executive officer. “These very gratifying results combined with a strong start to Wave position us well on our path toward Double-Double.”

FOURTH QUARTER RESULTS

Adjusted and US GAAP Net Income for the fourth quarter of 2015 was $206.8 million, or $0.94 per share, compared to Adjusted Net Income of $70 million, or $0.32 per share, for the same period last year.  Constant-Currency NCC excluding fuel were down 4.7%, 70 basis points better than guidance, mainly due to timing.  Net Yields on a Constant-Currency basis increased 4.9% versus guidance of 4.5% to 5.0%.  Stronger demand in the Caribbean and new China sailings in the winter drove an improvement versus last year.

FULL YEAR 2015 RESULTS

Adjusted Net Income for the full year 2015 was $1.07 billion, or $4.83 per share, compared to Adjusted Net Income of $755.7 million, or $3.39 per share, for the full year 2014.  This represents a 42% year-over-year increase.  US GAAP Net Income for the full year 2015 was $665.8 million.

Net Yields for the full year 2015 increased 3.5% on a Constant-Currency basis versus 2.4% in 2014.

NCC excluding fuel were down 0.6% on a Constant-Currency basis, marking another year of strong cost control.  The average bunker price net of hedging for full year 2015 was $582 per metric ton and consumption was 1,367,000 metric tons.

Last quarter, the company announced that its Pullmantur brand would re-focus to the core market of Spain as a result of the deterioration of economies in Latin America.  The company recorded a non-cash impairment charge of $399.3 million related to this change, which is reflected in the US GAAP Net Income figure.

During 2015, the US Dollar strengthened while the price of fuel in world markets declined.  While the impact of currency is immediate, there is a lag before a change in the price of fuel flows through to business.  There continues to be an inverse relationship between the foreign exchange impact on our currency exposures and fuel prices, but the offsets are not exact, especially in the short term.  For 2015, the net impact of currency and fuel was a negative $0.25 per share relative to our January guidance.

FULL YEAR 2016

The company’s booked position for 2016 is roughly equal to last year’s record high, and at higher rates.  Continued strength from North American consumers is driving strong demand for North American products such as Caribbean, Alaska, and Bermuda which represent over 50% of capacity for the year.  These North American products combined with strong demand for Northern Europe and Asia sailings are expected to more than offset current pricing challenges impacting the Mediterranean, Australia and Brazil.

The company expects a Net Yield increase in the range of 2.0% to 4.0% on a Constant-Currency basis and flat to up 2% on an As-Reported basis for the full year.

NCC excluding fuel are expected to be up 1% or less on a Constant-Currency basis and up 0.5% or less As-Reported.

“Despite some challenges in select destinations, our strong brands, innovative hardware and deployment optimization are continuing to deliver strong yield growth in 2016,” said Jason T. Liberty, chief financial officer.  “These yields coupled with continued cost discipline are expected to result in another year of step change performance.”

Over the past several months the dollar has continued to strengthen relative to our basket of currency exposures, while fuel prices have lowered – resulting in a negative $0.14 impact to earnings per share for 2016. Additionally, interest rates have recently increased, which are negatively impacting earnings by $0.06 per share.

Taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company currently estimates 2016 Adjusted EPS will be in the range of $5.90 – $6.10 per share.  

As the company noted previously, due to the weakness in the economies in Latin America, it is re-focusing the Pullmantur brand on its core market of Spain and right-sizing the brand.  Part of this right-sizing includes anticipated restructuring and related charges during 2016 in the range of $0.05 to $0.10 per share.  Additionally, the company plans to eliminate the two-month reporting lag for the Pullmantur brand in the first quarter of 2016 resulting in a negative impact of approximately $0.10 per share.  Both adjustments will be excluded from key metrics for transparency and comparability purposes.

FIRST QUARTER 2016

Constant-Currency Net Yields are expected to be up approximately 4.0% in the first quarter of 2016 (approximately 0.5% As-Reported). A strong Caribbean environment, combined with Quantum of the Seas’ first winter product in China, is driving the majority of the improvement.   

NCC excluding fuel are expected to be up in the range of 4.5% to 5.0% on a Constant-Currency basis (3.5% to 4.0% As-Reported).  While planned operating costs for the full year show continued strong expense discipline, the timing of costs between quarters varies considerably.  The company has a higher level of dry docks during the first and fourth quarters than the previous year.  It also plans to increase first quarter costs related to the expansion in China and for the launch of new marketing campaigns for the core brands.  In addition, although Ovation of the Seas and Harmony of the Seas are being delivered in the second quarter, there are some preparatory costs incurred in the months before delivery.  As a result, costs are more concentrated than usual in the first quarter.

Based on current fuel pricing, interest rates and currency exchange rates and the factors detailed above, the company expects first quarter Adjusted EPS to be approximately $0.30 per share.