10-QPeriod: Q3 FY2017

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 7, 2017For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported solid financial results for the third quarter and the first nine months of 2017. Total revenues saw a slight increase for the quarter and a more significant rise year-over-year for the nine-month period, driven by both higher passenger ticket prices and increased onboard spending. The company successfully managed its operating expenses, which decreased year-over-year for both periods, contributing to improved operating income. Net income also saw substantial growth, with diluted EPS rising to $3.49 for the quarter and $6.19 for the nine months, up from $3.21 and $4.72 respectively in the prior year. This performance was bolstered by strong equity investment income, particularly from its TUI Cruises joint venture, and effective hedging strategies that mitigated fuel price and currency fluctuations. The company also provided positive full-year 2017 guidance, indicating continued confidence in its operational performance and market position despite some impact from third-quarter hurricane disruptions.

Financial Highlights

50 data points
Beta

Revenue

$2.57B

48.7% Gross Margin

Net Income

$752.84M

29.3% Net Margin

EPS (Diluted)

$3.49

Total Assets

$22.10B

Cash & Equivalents

$139.95M

Free Cash Flow

$679.53M

Financial Statements
Beta
Revenue$2.57B
Cost of Revenue$1.32B
Gross Profit$1.25B
SG&A Expenses$273.64M
Operating Income$737.49M
Interest Expense$73.23M
Net Income$752.84M
EPS (Basic)$3.51
EPS (Diluted)$3.49
Shares Outstanding (Basic)214.69M
Shares Outstanding (Diluted)215.82M

Key Highlights

  • 1Total revenues for the nine months ended September 30, 2017, increased by 2.8% to $6.77 billion compared to the prior year.
  • 2Net income for the nine months increased by 31% to $1.34 billion, with diluted EPS rising to $6.19.
  • 3Gross Yields and Net Yields showed significant increases, up 6.0% and 6.9% respectively for the nine months, indicating stronger pricing power.
  • 4Cruise operating expenses decreased for both the quarter (1.6%) and the nine months (3.6%), reflecting effective cost management.
  • 5Equity investment income saw a substantial increase of 26.9% to $120.4 million for the nine months, primarily from the TUI Cruises joint venture.
  • 6The company provided positive full-year 2017 Adjusted EPS guidance of $7.35 to $7.40, reflecting strong performance expectations.
  • 7Capital expenditures remain significant with $13.0 billion in ships on order, indicating a commitment to fleet expansion and modernization.

Frequently Asked Questions

The company reported that hurricane-related disruptions in the third quarter of 2017 had an estimated negative impact of approximately $0.20 per share on diluted net income and Adjusted Net Income for both the quarter and the nine-month period. This was primarily due to canceled sailings and a decrease in capacity.

Royal Caribbean provided positive guidance for the full year 2017, expecting Adjusted Earnings Per Share (Diluted) to be between $7.35 and $7.40. For the fourth quarter, they anticipated Net Yields to increase by approximately 3.5% (As Reported) and Adjusted EPS (Diluted) to be between $1.15 and $1.20.

RCL has a substantial fleet expansion plan with $13.0 billion in ships on order as of September 30, 2017. They utilize a combination of cash flow from operations, drawdowns from credit facilities, incurring additional debt, and refinancing existing debt to manage these commitments. The company also maintains strong liquidity with cash and cash equivalents and available credit facilities, and they expect these resources to be adequate for their near-term obligations.

The company operates globally and is exposed to foreign currency exchange rate fluctuations. For the nine months ended September 30, 2017, foreign currency exchange rates had a negative impact of approximately $15.2 million on passenger ticket revenues. However, they also have hedging strategies in place to mitigate these risks, and the overall impact is monitored closely, with 'Constant Currency' metrics often reported to show performance independent of currency shifts.