10-QPeriod: Q2 FY2014

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 24, 2014For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported a significant increase in net income for the second quarter and first six months of 2014 compared to the same periods in 2013. Total revenues grew by 5.2% in the quarter and 1.9% year-to-date, driven primarily by higher passenger ticket revenues due to increased capacity and pricing on European and Asian sailings. The company also saw an improvement in net yields, indicating stronger pricing power. The company has been actively managing its financial structure, including repaying debt and amending loan facilities to reduce interest rates. While cruise operating expenses saw a slight increase, it was largely attributed to increased capacity and was partially offset by the divestiture of Pullmantur's non-core businesses and cost efficiencies. The company also highlighted progress on its "Double-Double Program" aimed at doubling 2014 adjusted earnings per share by 2017, underscoring a focus on shareholder value and profitability.

Financial Highlights

46 data points
Beta

Revenue

$1.98B

32.8% Gross Margin

Net Income

$137.67M

7.0% Net Margin

EPS (Diluted)

$0.62

Total Assets

$20.01B

Cash & Equivalents

$185.26M

Free Cash Flow

$400.46M

Financial Statements
Beta
Revenue$1.98B
Cost of Revenue$1.33B
Gross Profit$649.37M
SG&A Expenses$260.99M
Operating Income$195.59M
Interest Expense$65.26M
Net Income$137.67M
EPS (Basic)$0.62
EPS (Diluted)$0.62
Shares Outstanding (Basic)222.19M
Shares Outstanding (Diluted)223.38M

Key Highlights

  • 1Net income increased substantially to $137.7 million in Q2 2014 from $24.7 million in Q2 2013, and year-to-date net income rose to $164.1 million from $101.0 million in the prior year.
  • 2Total revenues increased by 5.2% in Q2 2014 to $2.0 billion and by 1.9% year-to-date to $3.9 billion, driven by higher passenger ticket revenues and onboard sales.
  • 3Net yields improved by 2.4% in Q2 2014 compared to the prior year, indicating stronger pricing power.
  • 4Interest expense decreased significantly by 24.9% in Q2 2014 due to lower interest rates and a reduced average debt level.
  • 5The company repaid €745.0 million in senior notes and amended several term loans in early 2014 to reduce borrowing costs.
  • 6Pullmantur completed the sale of its non-core businesses, which positively impacted revenue and expense comparisons by removing those segments from ongoing operations.
  • 7The company is proceeding with its "Double-Double Program" targeting double-digit Return on Invested Capital and doubled adjusted earnings per share by 2017.

Frequently Asked Questions

RCL's total revenues increased by 5.2% in Q2 2014 to $2.0 billion, up from $1.9 billion in Q2 2013. This growth was primarily driven by a 6.5% increase in passenger ticket revenues, attributed to a 4.5% increase in capacity and higher ticket prices for European and Asian sailings, partially offset by lower prices for Caribbean sailings. Onboard and other revenues also saw a modest increase of 1.7%.

RCL reported a strong increase in net income for Q2 2014, more than quintupling year-over-year, and a substantial increase in year-to-date net income. The company provided guidance for full-year 2014 adjusted diluted earnings per share of $3.40 to $3.50. Their "Double-Double Program" aims to double 2014 adjusted EPS by 2017 and achieve double-digit Return on Invested Capital (ROIC), indicating a strong focus on enhancing shareholder value and profitability.

In the first six months of 2014, RCL borrowed $380.0 million under a new term loan and used these proceeds to repay €745.0 million in senior notes. Additionally, the company amended several unsecured term loans for its Oasis and Allure of the Seas vessels, primarily to reduce interest rate margins and eliminate lender options for early exit, thereby lowering its interest expense.

The filing mentions potential impairment of goodwill and trademarks related to the Pullmantur reporting unit due to economic instability in its target markets. It notes that if anticipated vessel transfers to the Pullmantur fleet do not occur, an impairment charge might be required. While not a direct financial risk for the current quarter, it points to an area of potential future impact.