10-QPeriod: Q1 FY2015

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q1 Ended Mar 31, 2015

Filed April 23, 2015For Securities:RCL

Summary

For the first quarter ended March 31, 2015, Royal Caribbean Cruises Ltd. (RCL) reported a net income of $45.2 million, a significant increase from $26.5 million in the same period of the previous year. Diluted earnings per share also improved to $0.20 from $0.12. Total revenues, however, saw a slight decrease of 3.8% to $1.8 billion, largely impacted by unfavorable foreign currency exchange rate fluctuations, which reduced revenues by $82.3 million, and the divestiture of Pullmantur's non-core businesses. The company highlighted operational efficiencies, with total cruise operating expenses decreasing by 6.2% year-over-year, primarily driven by lower fuel prices and the benefit of foreign currency exchange rates. Despite the revenue dip, a stronger operational cost management led to improved profitability and a higher net income. RCL also announced the delivery of its new ship, Anthem of the Seas, and continues to invest in fleet expansion with several newbuilds on order.

Financial Highlights

47 data points
Beta

Revenue

$1.82B

32.7% Gross Margin

Net Income

$45.23M

2.5% Net Margin

EPS (Diluted)

$0.20

Total Assets

$20.87B

Cash & Equivalents

$229.71M

Free Cash Flow

$121.78M

Financial Statements
Beta
Revenue$1.82B
Cost of Revenue$1.22B
Gross Profit$592.98M
SG&A Expenses$286.83M
Operating Income$105.68M
Interest Expense$70.16M
Net Income$45.23M
EPS (Basic)$0.21
EPS (Diluted)$0.20
Shares Outstanding (Basic)219.63M
Shares Outstanding (Diluted)220.84M

Key Highlights

  • 1Net income increased to $45.2 million in Q1 2015 from $26.5 million in Q1 2014, a substantial year-over-year improvement.
  • 2Diluted EPS rose to $0.20 in Q1 2015, up from $0.12 in Q1 2014, reflecting enhanced profitability.
  • 3Total revenues decreased by 3.8% to $1.8 billion, primarily due to unfavorable foreign currency exchange rates and the sale of Pullmantur's non-core businesses.
  • 4Cruise operating expenses decreased by 6.2% year-over-year, driven by lower fuel costs and positive foreign currency impacts.
  • 5The company took delivery of the new ship 'Anthem of the Seas' in April 2015.
  • 6RCL maintains a robust pipeline of new ships on order, with nine vessels expected to enter service through 2017.
  • 7The company's Net Debt-to-Capital ratio improved slightly to 51.1% from 49.9% over the period.

Frequently Asked Questions

The increase in net income was primarily driven by a significant decrease in cruise operating expenses, which fell by 6.2%. This reduction was largely attributable to lower fuel prices and favorable foreign currency exchange rate movements, which more than offset the decline in total revenue. Additionally, the company reported a substantial unrealized loss on cash flow derivative hedges of $260.9 million in Q1 2015 compared to $52.9 million in Q1 2014, which negatively impacted comprehensive income but did not directly affect net income in the same period.

Foreign currency exchange rates had a notable impact. Unfavorable currency movements reduced total revenues by $82.3 million year-over-year. Conversely, favorable currency movements decreased cruise operating expenses by $32.4 million. The net effect on revenue was negative, while the impact on expenses was positive.

RCL is actively expanding its fleet. The company took delivery of 'Anthem of the Seas' in April 2015 and has nine ships on order across its brands, with expected deliveries through 2017. As of March 31, 2015, the aggregate cost of ships on order (excluding Project Edge and TUI Cruises ships) was approximately $4.9 billion, with $554.2 million deposited. The company anticipates significant capital expenditures for new ship orders in the coming years, with $1.6 billion planned for 2015 and $2.3 billion for 2016.

The company notes that its business is subject to risks and uncertainties, including those discussed in its 2014 Annual Report, such as economic instability in key markets (specifically mentioning Pullmantur's exposure to Spanish, Portuguese, and Latin American markets), potential impairment of goodwill and trademarks, and legal proceedings such as the ongoing arbitration claims from crew members. Changes in credit ratings could also trigger debt prepayments, impacting liquidity.