Royal Caribbean Reports 2018 Second Quarter Earnings

Mariner of the Seas

Royal Caribbean Cruises today reported record second quarter results and reaffirmed its full year Adjusted EPS guidance of $8.70 to $8.90 per share.

The company noted that this guidance includes a $0.35 negative impact from currency and fuel since the April guidance. 

This negative impact is being offset by better second quarter results and an improved revenue outlook. 

For the second quarter, the company reported US GAAP earnings of $2.19 per share and adjusted earnings of $2.27 per share, beating guidance by $0.39 per share.

Results for the Second Quarter 2018:

US GAAP Net Income was $466.3 million or $2.19 per share and Adjusted Net Income was $482.2 million or $2.27 per share versus US GAAP and Adjusted Net Income of $369.5 million or $1.71 per share in 2017.

Gross Yields were up 2.7% in Constant-Currency (up 3.7% As-Reported). Net Yields were up 2.8% in Constant-Currency (up 3.8% As-Reported).

Gross Cruise Costs per APCD increased 1.1% in Constant-Currency (up 1.8% As-Reported). Net Cruise Costs ("NCC") excluding Fuel per APCD were up 1.1% in Constant-Currency (up 1.8% As-Reported).

Full Year 2018

Adjusted earnings for the full year are expected to be in the range of $8.70 to $8.90 per share.

Net Yields are expected to increase 2.75% to 3.75% in Constant-Currency (up 3.25% to 4.0% As-Reported).

NCC excluding Fuel per APCD are expected to be up approximately 2.5% in Constant-Currency (up approximately 3.0% As-Reported).

"While we are frustrated by foreign exchange and fuel rates, we are tickled pink that our business continues to excel and overcome these headwinds," said Richard D. Fain, chairman and CEO. "It is a pleasure to prove, once again, how strong our brands are and to demonstrate continued upside to our yields while maintaining strong expense control."

Second Quarter

US GAAP Net Income for the second quarter of 2018 was $466.3 million or $2.19 per share and Adjusted Net Income was $482.2 million or $2.27 per share.  Last year, both US GAAP and Adjusted Net Income were $369.5 million or $1.71 per share.  The company beat the Adjusted EPS guidance for the second quarter by $0.39.  Such a high level of favorability is unusual and was driven by a noteworthy confluence of factors including: better than expected revenue from the global brands, better performance from the joint ventures and lower than expected expenses which were driven by timing.

Gross Yields were up 2.7% and Net Yields were up 2.8% in Constant-Currency, exceeding prior guidance due to strong close-in demand for the core products and better onboard revenues.

Gross Cruise Costs per APCD increased 1.1% in Constant-Currency.  Net Cruise Costs ("NCC") excluding Fuel per APCD were up 1.1% in Constant-Currency, lower than guidance, driven  by the timing of hotel and marine related projects and marketing related expenses. 

Additionally, better than expected performance below the line, mainly due to additional returns from the joint ventures, contributed to the quarter's unusually high performance.

Bunker pricing net of hedging for the second quarter was $513.6 per metric ton and consumption was 335.5 metric tons.

Since  last call, the company repurchased $300 million in shares as part of the $1 billion repurchase program authorized in May 2018.

Full Year 2018

The company expects its full year Adjusted EPS to be in the range of $8.70 to $8.90 per share.  This range includes a negative impact of $0.35 from currency and fuel versus previous quarterly guidance and $0.06 in additional interest expense related to the purchase price for Silversea.  Thus, excluding the impact of currency, fuel and additional interest related to the Silversea investment, the company is effectively raising its guidance by $0.40 per share.

The company expects a Net Yield increase in the range of 2.75% to 3.75% in Constant-Currency. As-Reported yields are expected to be up 3.25% to 4.0%.

NCC excluding Fuel are expected to be up approximately 2.5% in Constant-Currency - in line with previous guidance; and up approximately 3.0% As-Reported. 

Taking into account current fuel pricing, interest and currency exchange rates, and the factors detailed above, the company estimates 2018 Adjusted EPS to be in the range of $8.70 to $8.90 per share. 

"2018 is shaping up to be another year of record earnings, which is being driven by a strong demand environment and effective cost and capital management," said Jason T. Liberty, executive vice president and CFO. "While it is too early to guide on 2019, it is very encouraging to see these positive trends further supporting a strong book of business for next year."

Third Quarter

Constant-Currency Net Yields are expected to be up approximately 2.0% for the third quarter of 2018. 

NCC excluding Fuel for the third quarter are expected to be down approximately 1.0% in Constant-Currency.

Based on current fuel pricing, interest and currency exchange rates, and the factors detailed above, the company expects third quarter Adjusted EPS to be in the range of $3.90 to $3.95 per share. This number includes the negative impact of approximately $0.20 from currency and fuel when compared to the rates included in the previous quarterly guidance.

Silversea

As separately announced, the company received all necessary governmental approvals for the Silversea share purchase and closed the transaction on July 31st. Accordingly, the guidance above includes approximately $0.06 in additional interest expense related to the financing of purchase price. The company will record Silversea's results with a three-month lag, which means that the company expects to begin consolidating their operations in the fourth quarter of 2018. 

As previously stated, Silversea is not expected to materially impact near term Adjusted Earnings per Share for the company as a whole. However, the consolidation of Silversea will have some impact on the company's metrics. Firstly, the transaction involves purchase accounting adjustments which will take some time to determine. Although the bulk of these adjustments will be excluded from Adjusted Earnings per Share there could be some included. These will not be known for some time, but have been assumed to be neutral in the above guidance.

More visibly, Silversea is an ultra-luxury brand with higher per berth revenues and higher per berth expenses than the company's other brands. While the bottom line impact in the near term should be immaterial, the consolidation will mean higher average yields for the company and higher costs per berth.

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