01—Abstract
Summary
Summary of the 10-Q filed October 28, 2016. Cited figures are marked; the original filing is the authoritative source.
Royal Caribbean Cruises Ltd. (RCL) reported a significant increase in net income for the third quarter and first nine months of 2016 compared to the prior year.
Total revenues saw a modest increase of 1.6% for the quarter and 3.0% for the nine-month period, driven by higher capacity and increased passenger spending, partially offset by unfavorable foreign currency exchange rates. The company successfully managed operating expenses, with total cruise operating expenses decreasing by 3.4% for the quarter, largely due to lower fuel costs and favorable currency impacts, though expenses increased slightly for the nine-month period due to capacity expansion. Financially, RCL delivered strong bottom-line results, with diluted earnings per share rising to $3.21a in Q3 2016 from $1.03 in Q3 2015, and $4.72 for the nine months compared to $2.08 in the prior year.
This improved profitability was partly due to the absence of a significant impairment charge recorded in the prior year related to Pullmantur assets. The company also continued to invest in fleet expansion, taking delivery of two new ships, Ovation of the Seas and Harmony of the Seas, and has a robust pipeline of future ship orders, signaling continued growth potential.
02—Key points
Key Highlights
- Net income for the third quarter of 2016 was $693.3 million, a substantial increase from $228.8 million in the same period of 2015.
- Diluted Earnings Per Share (EPS) for Q3 2016 was $3.21, significantly up from $1.03 in Q3 2015.
- Total revenues for Q3 2016 increased by 1.6% to $2.56 billion, driven by higher passenger ticket and onboard revenues.
- Total cruise operating expenses decreased by 3.4% to $1.34 billion in Q3 2016, primarily due to lower fuel costs and favorable foreign currency impacts.
- The company took delivery of two new ships, Ovation of the Seas and Harmony of the Seas, in 2016, supporting fleet expansion.
- Net cash provided by operating activities increased by $0.4 billion to $2.0 billion for the first nine months of 2016 compared to the same period in 2015.
- RCL maintained strong occupancy rates, with Q3 2016 occupancy at 109.8%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Royal Caribbean Cruises Ltd kept $0.27.
- Revenue$2.56B100.0%
- Cost of revenue−$1.34B52.3%
- Gross profit$1.22B47.7%
- Operating costs−$488.7M19.1%
- Operating income$735.0M28.7%
- Interest, other & tax−$41.7M1.6%
- Net income$693.3M27.0%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed October 28, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $2.56B$2.52B | +1.6% |
| Cost of Revenue | $1.34B$1.39B | −3.4% |
| Gross Profit | $1.22B$1.14B | +7.7% |
| SG&A Expenses | $259.33M$256.06M | +1.3% |
| Operating Income | $734.96M$258.00M | +184.9% |
| Interest Expense | $82.61M$66.82M | +23.6% |
| Net Income | $693.26M$228.79M | +203.0% |
| EPS (Basic) | $3.23$1.04 | +210.6% |
| EPS (Diluted) | $3.21$1.03 | +211.7% |
| Shares Outstanding (Basic) | 214.82M219.96M | −2.3% |
| Shares Outstanding (Diluted) | 215.67M221.14M | −2.5% |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant increase in net income for Q3 2016 compared to Q3 2015?
The significant increase in net income was driven by a combination of factors, including a rise in total revenues due to increased capacity and higher passenger spending, a decrease in total cruise operating expenses primarily from lower fuel costs and favorable foreign currency impacts, and importantly, the absence of a large impairment charge related to Pullmantur assets that was recorded in the prior year's third quarter.
How did the new ship deliveries impact the company's financial performance?
The delivery of Ovation of the Seas and Harmony of the Seas in 2016 contributed to increased capacity, driving higher passenger ticket and onboard revenues. These new vessels also led to an increase in depreciation and amortization expenses, as well as higher interest expenses due to associated financing.
What is the company's outlook for Net Yields and Net Cruise Costs for the remainder of 2016?
For the full year 2016, RCL projected Net Yields to increase between 1.7% to 2.0% (4.0% or better on a constant currency basis). Net Cruise Costs per APCD were expected to decrease by approximately 2.0% (1.5% on a constant currency basis), and Net Cruise Costs Excluding Fuel per APCD were projected to increase by approximately 0.5% (1.0% on a constant currency basis).
What impact did foreign currency exchange rates have on the company's results?
Foreign currency exchange rates had an unfavorable impact on revenues, reducing them by $58.8 million for the quarter and $154.3 million for the nine months. Conversely, currency movements had a favorable effect on cruise operating expenses, reducing them by $10.2 million for the quarter and $34.2 million for the nine months. The company actively monitors and manages its exposure to foreign currency fluctuations through hedging strategies.
06—Continue