01—Abstract
Summary
Summary of the 10-Q filed October 23, 2015. Cited figures are marked; the original filing is the authoritative source.
Royal Caribbean Cruises Ltd. (RCL) reported its third quarter and nine-month results for the period ending September 30, 2015.
The company experienced a significant year-over-year decline in net income, largely driven by a substantial impairment charge of $411.3 milliona related to its Pullmantur brand. This charge reflects the negative economic conditions and currency devaluation in Latin America, prompting a strategic shift for Pullmantur towards a right-sizing approach. Despite this significant non-recurring charge, total revenues saw an increase, driven by higher capacity and improved per-passenger spending on board.
Operationally, RCL is navigating challenging economic environments, particularly in Latin America, which has impacted the Pullmantur brand. However, the company is strategically investing in fleet expansion with new ship deliveries and commitments for future vessels.
Management is also focusing on cost control, as evidenced by a decrease in net cruise costs. The company provided updated guidance for the full year and fourth quarter of 2015, indicating expectations for continued revenue growth on a constant currency basis, offset by the aforementioned impairment charge impacting the reported net income.
02—Key points
Key Highlights
- Significant impairment charge of $411.3 million recognized for Pullmantur related assets (goodwill, trademarks, long-lived assets) due to adverse economic conditions in Latin America.
- Total revenues increased by 5.6% for the quarter and 2.3% for the nine months ended September 30, 2015, compared to the prior year periods, driven by increased capacity and higher onboard spending.
- Net income for the quarter decreased by 53.3% to $228.8 million ($1.03 diluted EPS) from $490.2 million ($2.19 diluted EPS) in the prior year quarter.
- The company is actively managing its fuel costs and hedging strategies, showing a decrease in fuel expenses and a stable percentage of hedged fuel consumption.
- Capital expenditures remain significant, with multiple new ships on order across various brands, indicating ongoing investment in fleet modernization and expansion.
- Shareholder returns are being supported through dividend payments and a newly authorized $500 million share repurchase program.
- The company maintains a substantial amount of liquidity, with $147.4 million in cash and cash equivalents and $858.0 million available under credit facilities as of September 30, 2015.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2015, Royal Caribbean Cruises Ltd kept $0.09.
- Revenue$2.52B100.0%
- Cost of revenue−$1.39B55.0%
- Gross profit$1.14B45.0%
- Operating costs−$878.1M34.8%
- Operating income$258.0M10.2%
- Interest, other & tax−$29.2M1.2%
- Net income$228.8M9.1%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2015filed October 23, 2015Financial Statements
Q3 FY2015 against Q3 FY2014
| Line item | Q3 FY2015Q3 FY2014 | Change |
|---|---|---|
| Revenue | $2.52B$2.39B | +5.6% |
| Cost of Revenue | $1.39B$1.43B | −2.8% |
| Gross Profit | $1.14B$961.88M | +18.1% |
| SG&A Expenses | $256.06M$239.66M | +6.8% |
| Operating Income | $258.00M$529.46M | −51.3% |
| Interest Expense | $66.82M$60.10M | +11.2% |
| Net Income | $228.79M$490.25M | −53.3% |
| EPS (Basic) | $1.04$2.20 | −52.7% |
| EPS (Diluted) | $1.03$2.19 | −53.0% |
| Shares Outstanding (Basic) | 219.96M222.52M | −1.2% |
| Shares Outstanding (Diluted) | 221.14M223.86M | −1.2% |
05—Questions
Frequently Asked Questions
What caused the significant decrease in net income for the quarter?
The primary driver for the substantial decrease in net income for the quarter was a $411.3 million impairment charge related to Pullmantur's goodwill, trademarks, trade names, and certain long-lived assets. This impairment was necessitated by deteriorating economic conditions and currency devaluation in Latin America, impacting the brand's strategic outlook.
How did the company's revenues perform?
Total revenues showed positive growth, increasing by 5.6% to $2.5 billion for the third quarter of 2015 and by 2.3% to $6.4 billion for the nine months ended September 30, 2015, compared to the same periods in the prior year. This growth was attributed to a higher capacity across the fleet and increased passenger spending on onboard services and amenities.
What is the company's outlook for the remainder of 2015?
For the full year 2015, Royal Caribbean Cruises Ltd. projected an Adjusted Earnings Per Share of approximately $4.80. The company also provided guidance for the fourth quarter of 2015, expecting net yields to increase between 4.5% and 5.0% on a constant currency basis, while net cruise costs per APCD are expected to decrease.
What is the company doing about its fleet and future capacity?
Royal Caribbean Cruises Ltd. is actively expanding and modernizing its fleet. As of September 30, 2015, the company had ten ships on order across its brands, including new Quantum-class and Oasis-class vessels for Royal Caribbean International, and new 'Project Edge' ships for Celebrity Cruises. These investments are intended to enhance capacity and guest experience.
06—Continue