10-QPeriod: Q2 FY2010

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 23, 2010For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported a significant turnaround in its financial performance for the second quarter ended June 30, 2010, compared to the same period in the prior year. The company achieved a net income of $60.5 million, or $0.28 per diluted share, a substantial improvement from a net loss of $35.1 million, or ($0.16) per diluted share, in the second quarter of 2009. This recovery was driven by a 18.7% increase in total revenues, reaching $1.6 billion, largely attributed to a 14.6% increase in capacity and a 4.9% rise in Net Yields. The company is actively managing its fleet expansion, taking delivery of the 'Celebrity Eclipse' and anticipating the 'Allure of the Seas' in late 2010. Financial health is further bolstered by a strong net cash provided by operating activities of $1.01 billion for the first six months of 2010, an increase from $342.9 million in the prior year. Despite a substantial debt load, RCL appears to be effectively navigating its financial obligations and has reaffirmed its full-year 2010 earnings per share guidance, indicating continued positive momentum.

Financial Highlights

45 data points
Beta

Revenue

$1.60B

32.2% Gross Margin

Net Income

$53.73M

3.4% Net Margin

EPS (Diluted)

$0.25

Total Assets

$18.30B

Cash & Equivalents

$318.82M

Free Cash Flow

-$83.17M

Financial Statements
Beta
Revenue$1.60B
Cost of Revenue$1.09B
Gross Profit$515.51M
SG&A Expenses$211.79M
Operating Income$143.68M
Interest Expense$90.66M
Net Income$53.73M
EPS (Basic)$0.25
EPS (Diluted)$0.25
Shares Outstanding (Basic)215.04M
Shares Outstanding (Diluted)217.56M

Key Highlights

  • 1Significant improvement in profitability: RCL reported a net income of $60.5 million in Q2 2010, a stark contrast to a net loss in Q2 2009.
  • 2Revenue growth driven by capacity and yield: Total revenues increased by 18.7% to $1.6 billion, fueled by higher capacity and improved Net Yields.
  • 3Strong operating cash flow: Net cash provided by operating activities for the first six months of 2010 was $1.01 billion, demonstrating robust cash generation.
  • 4Fleet expansion continues: The company took delivery of the 'Celebrity Eclipse' and has 'Allure of the Seas' scheduled for Q4 2010, indicating strategic growth.
  • 5Improved cost management: Net Cruise Costs per Available Passenger Cruise Day (APCD) decreased by 2.8% year-over-year for the quarter.
  • 6Positive outlook reiterated: The company maintained its full-year 2010 earnings per share guidance, signaling confidence in continued performance.
  • 7Settlement of litigation provided a one-time gain: A $68 million payment (part of an $85.6 million gain) from a settlement with Rolls Royce contributed to financial results.

Frequently Asked Questions

The primary driver for the improved financial performance was a combination of increased capacity, a 14.6% rise in available passenger cruise days, and a 4.9% increase in Net Yields, which reflects higher ticket prices and onboard spending per passenger. This led to a significant increase in total revenues and a return to profitability.

Royal Caribbean is managing its debt through strong operating cash flows, strategic refinancing of its debt portfolio (including terminating certain swap agreements to increase its fixed percentage of debt), and securing committed financing for new ship deliveries. As of June 30, 2010, the company was in compliance with all debt covenants and had liquidity of $1.0 billion.

The company expects positive trends to continue. For the third quarter of 2010, they anticipate Net Yields to increase by approximately 4% (7% on a constant currency basis) and Net Cruise Costs per APCD to decrease by approximately 1%. For the full year 2010, they project Net Yields to increase by 3-4% and Net Cruise Costs per APCD to decrease by 1-2%, reiterating their full-year EPS guidance of $2.25 to $2.35.

The company is involved in various legal proceedings, including a lawsuit settlement with Rolls Royce which resulted in a gain, and ongoing matters related to employment practices and artwork sales on ships. While they believe they have meritorious defenses for most claims, these could potentially impact financial results. The majority of routine claims are covered by insurance.