10-QPeriod: Q1 FY2012

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q1 Ended Mar 31, 2012

Filed April 24, 2012For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported first-quarter 2012 results that showed a significant year-over-year decline in net income, falling to $47.0 million ($0.21 diluted EPS) from $78.4 million ($0.36 diluted EPS) in the prior year period. This decline was primarily driven by a substantial increase in cruise operating expenses, particularly fuel costs, which surged by 30.0% per metric ton. Total revenues saw a healthy 9.7% increase to $1.8 billion, fueled by higher ticket prices and a 2.5% capacity increase, though partially offset by unfavorable foreign currency exchange rates. The company also noted the ongoing impact of the Costa Concordia incident, which is expected to negatively affect results in the second and third quarters of 2012, despite strong bookings for the fourth quarter of 2012 and 2013. Despite the decrease in net income, RCL's financial position remains solid with a total debt-to-capital ratio of 49.8% and a net debt-to-capital ratio of 49.0% as of March 31, 2012. The company continues to invest in future growth, exercising its option for a second "Project Sunshine" ship due in 2015. Liquidity appears adequate, with $277.5 million in cash and cash equivalents and $805.0 million available under revolving credit facilities.

Financial Highlights

48 data points
Beta

Revenue

$1.83B

31.6% Gross Margin

Net Income

$46.96M

2.6% Net Margin

EPS (Diluted)

$0.21

Total Assets

$20.03B

Cash & Equivalents

$277.53M

Free Cash Flow

$37.98M

Financial Statements
Beta
Revenue$1.83B
Cost of Revenue$1.26B
Gross Profit$579.37M
SG&A Expenses$264.60M
Operating Income$135.38M
Interest Expense$92.67M
Net Income$46.96M
EPS (Basic)$0.22
EPS (Diluted)$0.21
Shares Outstanding (Basic)217.58M
Shares Outstanding (Diluted)219.23M

Key Highlights

  • 1Net income decreased to $47.0 million ($0.21 diluted EPS) in Q1 2012 from $78.4 million ($0.36 diluted EPS) in Q1 2011.
  • 2Total revenues increased by 9.7% to $1.8 billion, driven by higher ticket prices and a 2.5% capacity increase.
  • 3Cruise operating expenses rose significantly by 14.0% to $1.3 billion, largely due to a 30.0% increase in fuel costs per metric ton and higher food and commission expenses.
  • 4The company exercised an option for a second 'Project Sunshine' ship, scheduled for delivery in Q2 2015, indicating continued investment in fleet expansion.
  • 5Net Yields increased by 6.4% due to higher ticket prices and strategic distribution changes, while Net Cruise Costs per APCD increased by 12.8%.
  • 6The Costa Concordia incident is noted as having a negative short-term impact on 2012 results, particularly in Q2 and Q3.
  • 7Liquidity remains strong with $277.5 million in cash and cash equivalents and $805.0 million available under credit facilities.

Frequently Asked Questions

The primary driver for the decrease in net income was a significant increase in cruise operating expenses, particularly fuel costs which rose by 30.0% per metric ton. Higher food and commission expenses also contributed to the increased operating costs.

Royal Caribbean utilizes fuel swap agreements and fuel call options to mitigate its exposure to fuel price fluctuations. As of March 31, 2012, approximately 56% of projected 2012 fuel consumption was hedged via swaps.

The company stated that the Costa Concordia tragedy is having a short-term negative effect on its results, with the greatest impact expected in the second and third quarters of 2012. However, they believe it will not have a significant long-term impact on the business.

Royal Caribbean has future capital commitments primarily related to new ship orders. As of March 31, 2012, they had 'Celebrity Reflection' and two 'Project Sunshine' ships on order, with an aggregate cost of approximately $3.0 billion, and anticipated overall capital expenditures of about $1.3 billion for 2012.