10-QPeriod: Q3 FY2014

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q3 Ended Sep 30, 2014

Filed October 23, 2014For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported a strong third quarter for 2014, with net income rising significantly to $490.2 million, or $2.19 per diluted share, compared to $365.7 million, or $1.65 per diluted share, in the same period of 2013. This robust performance was driven by an increase in total revenues, which grew 3.3% year-over-year, fueled by higher passenger ticket revenues and increased capacity. The company also demonstrated effective cost management, with cruise operating expenses showing a modest increase of 0.7% despite higher capacity, and a notable decrease in interest expense. For the first nine months of 2014, net income also saw substantial growth, reaching $654.4 million, or $2.93 per diluted share, compared to $466.7 million, or $2.11 per diluted share, in the prior year period. Total revenues for the nine-month period increased by 2.5%. Key to the improved profitability was a reduction in restructuring charges and effective management of operating expenses, particularly the decline in interest expense. The company also provided positive outlook guidance for the full year 2014 and expressed optimism for 2015, citing strong early booking trends.

Financial Highlights

46 data points
Beta

Revenue

$2.39B

40.3% Gross Margin

Net Income

$490.25M

20.5% Net Margin

EPS (Diluted)

$2.19

Total Assets

$19.60B

Cash & Equivalents

$183.18M

Free Cash Flow

$362.09M

Financial Statements
Beta
Revenue$2.39B
Cost of Revenue$1.43B
Gross Profit$961.88M
SG&A Expenses$239.66M
Operating Income$529.46M
Interest Expense$60.10M
Net Income$490.25M
EPS (Basic)$2.20
EPS (Diluted)$2.19
Shares Outstanding (Basic)222.52M
Shares Outstanding (Diluted)223.86M

Key Highlights

  • 1Net income for Q3 2014 increased by 34.1% to $490.2 million compared to Q3 2013 ($365.7 million).
  • 2Diluted Earnings Per Share (EPS) for Q3 2014 rose to $2.19, up from $1.65 in Q3 2013.
  • 3Total revenues for Q3 2014 increased by 3.3% to $2.39 billion, driven by higher passenger ticket revenues.
  • 4For the nine months ended September 30, 2014, net income grew to $654.4 million from $466.7 million in the comparable period of 2013.
  • 5Interest expense, net of interest capitalized, decreased significantly by 24.5% for both the quarter and nine months ended September 30, 2014.
  • 6The company sold the Celebrity Century in September 2014 for $220 million, resulting in a $17.4 million loss recognized in other operating expenses.
  • 7RCL updated its accounting methodology for revenue and cost recognition on voyages, leading to a $16.3 million increase in net income for the quarter and nine months ended September 30, 2014.

Frequently Asked Questions

The primary driver of the increased profitability was a significant rise in net income, up 34.1% to $490.2 million, driven by a 3.3% increase in total revenues to $2.39 billion. This revenue growth was primarily fueled by higher passenger ticket revenues and an increase in capacity, coupled with effective cost management that resulted in a more modest increase in operating expenses.

Royal Caribbean Cruises Ltd. (RCL) successfully reduced its interest expense, which decreased by 24.5% for both the quarter and the nine-month period ended September 30, 2014. This was due to lower interest rates and a reduction in the average debt level. The company also repaid its €745.0 million senior notes in January 2014 using proceeds from a new term loan facility and its revolving credit facilities.

The company provided a positive outlook for the full year 2014, projecting adjusted earnings per share of approximately $3.45 and anticipating growth in net yields and flat to slightly down net cruise costs per APCD. For 2015, RCL expressed confidence in continued yield growth, expecting it to be the sixth consecutive year, and is comfortable with the consensus street estimate of $4.55 for adjusted earnings per share, citing strong early booking trends.

Yes, in September 2014, RCL sold the Celebrity Century to an unrelated third party for $220.0 million in cash. This sale resulted in a loss of $17.4 million, which was recognized within other operating expenses. Additionally, Pullmantur completed the sale of its non-core businesses in March 2014, which impacted revenues and expenses in the reporting periods.