10-QPeriod: Q2 FY2005

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q2 Ended Jun 30, 2005

Filed July 27, 2005For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported a strong second quarter and first half of 2005, demonstrating significant year-over-year growth in both revenue and profitability. Total revenues increased by 5.3% for the quarter and 7.6% for the six-month period, driven by higher cruise ticket prices and increased onboard spending. Net income saw a substantial rise, with diluted earnings per share reaching $0.71 for the quarter and $1.34 for the first six months, up from $0.58 and $1.05, respectively, in the prior year. The company is strategically investing in fleet expansion, with three Freedom-class ships on order and a letter of intent for a new Celebrity Cruises ship. While facing rising fuel costs, which are expected to impact Net Cruise Costs, RCL has implemented fuel-saving initiatives and hedging strategies. The company also announced significant financial maneuvers including the redemption of convertible preferred shares and notes, and plans for share repurchases, which are expected to have a positive impact on earnings per share. The outlook for the remainder of 2005 remains positive, with strong consumer demand and pricing power.

Key Highlights

  • 1For the second quarter of 2005, Net Income was $154.5 million, or $0.71 per diluted share, a significant increase from $122.2 million, or $0.58 per diluted share, in Q2 2004.
  • 2Total revenues for the second quarter of 2005 grew 5.3% to $1.2 billion, driven by increased cruise ticket prices and onboard revenues.
  • 3For the first six months of 2005, Net Income was $289.8 million, or $1.34 per diluted share, compared to $218.0 million, or $1.05 per diluted share, in the same period of 2004.
  • 4Net Yields increased by 6.3% in Q2 2005 and 7.2% for the first six months of 2005 compared to the prior year, indicating strong pricing power.
  • 5The company anticipates significant capital expenditures for fleet expansion, with three Freedom-class ships on order and plans for a new Celebrity Cruises ship.
  • 6Despite a 37% increase in fuel prices for Q2 2005, the company reaffirmed its positive outlook, expecting Net Yields to increase between 6%-7% for the full year 2005.
  • 7Subsequent events include the redemption of First Choice Holidays convertible preferred shares for $348.0 million and a partial redemption of LYONs, alongside plans to repurchase up to $250 million of common stock.

Frequently Asked Questions

For the second quarter of 2005, Royal Caribbean reported a Net Income of $154.5 million ($0.71 per diluted share), a significant increase from $122.2 million ($0.58 per diluted share) in the second quarter of 2004. Total revenues also grew by 5.3% to $1.2 billion, driven by higher cruise ticket prices and onboard revenues.

Fuel costs increased by 37% in the second quarter of 2005 compared to the prior year. The company estimates that if fuel prices remain at current levels, it could negatively impact full-year earnings per share by approximately $0.14. Despite this, RCL reaffirms its full-year earnings per share guidance to be in the range of $2.70 to $2.80, supported by strong consumer demand and pricing power.

Royal Caribbean has three Freedom-class ships on order with aggregate costs of approximately $2.5 billion, scheduled for delivery in 2006, 2007, and 2008. Additionally, a letter of intent has been signed for a new Celebrity Cruises ship for delivery in late 2008. These significant investments underscore the company's commitment to expanding its capacity and modernizing its fleet.

Subsequent to the quarter, RCL announced the redemption of First Choice Holidays PLC's convertible preferred shares for $348.0 million, which is expected to result in a foreign exchange gain of $44.2 million. The company also called for partial redemption of its Liquid Yield Option™ Notes (LYONs) and plans to repurchase up to $250 million of its common stock. These actions are expected to be neutral to 2006 earnings per share.