10-QPeriod: Q1 FY2007

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 1, 2007For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported its first quarter 2007 financial results, showing a significant year-over-year decrease in net income, largely impacted by a one-time gain recorded in the prior year and challenging demand conditions in the Caribbean market. Despite lower net income, total revenues saw a healthy increase of 6.7% to $1.2 billion, driven by a substantial 9.7% rise in capacity from the addition of new ships and the acquisition of Pullmantur. However, this was partially offset by a 2.7% decrease in Gross Yields and a 3.4% decrease in Net Yields, reflecting softer pricing and occupancy rates, attributed to general economic conditions impacting consumer discretionary spending. The company also saw an increase in Net Cruise Costs per Available Passenger Cruise Day (APCD), partly due to the integration of Pullmantur's tour business and rising payroll expenses.

Key Highlights

  • 1Total revenues increased by 6.7% to $1.2 billion, driven by a 9.7% increase in capacity.
  • 2Net income decreased significantly to $8.8 million ($0.04 EPS diluted) from $119.5 million ($0.55 EPS diluted) in Q1 2006, primarily due to a $36.0 million gain on lawsuit settlement in the prior year.
  • 3Net Yields decreased by 3.4% due to lower demand and pricing, particularly in the Caribbean itineraries.
  • 4Capacity increased by 9.7% due to the addition of 'Freedom of the Seas' in 2006 and the acquisition of Pullmantur in late 2006.
  • 5Net Cruise Costs per APCD increased by 5.4%, influenced by the inclusion of Pullmantur's tour business and higher payroll expenses.
  • 6The company completed a significant debt issuance of €1.0 billion ($1.3 billion) to refinance its Pullmantur acquisition bridge loan and repay a portion of its revolving credit facility.
  • 7Full-year 2007 EPS is projected to be between $3.05 and $3.20, with Net Yields expected to be flat on a comparable basis and Net Cruise Costs per APCD decreasing by approximately 2% on a comparable basis.

Frequently Asked Questions

The substantial decrease in net income from $119.5 million in Q1 2006 to $8.8 million in Q1 2007 was primarily due to a one-time gain of $36.0 million recorded in the first quarter of 2006 from the partial settlement of a lawsuit concerning pod propulsion system failures. This gain is not present in the current year's results.

Royal Caribbean experienced a 3.4% decrease in Net Yields due to challenging demand conditions and general economic factors impacting discretionary spending. To counter this, the company is focusing on managing costs. For the full year 2007, they anticipate Net Yields to be flat on a comparable basis (excluding Pullmantur) and Net Cruise Costs per APCD to decrease by approximately 2% on a comparable basis.

The acquisition of Pullmantur, completed in November 2006, contributed to a 9.7% increase in capacity. However, it also led to higher operating expenses, with Pullmantur's tour business contributing to a 5.4% increase in Net Cruise Costs per APCD. The company has refinanced debt related to the acquisition and is integrating Pullmantur's operations into its results.

Royal Caribbean has significant capital commitments for new ship construction. As of March 31, 2007, they had six ships on order with an aggregate cost of approximately $5.4 billion. Planned capital expenditures are substantial, with approximately $1.2 billion expected in 2007, and projected spending of $1.8 billion, $2.0 billion, and $2.1 billion in the subsequent three years for new vessels.