10-QPeriod: Q2 FY2018

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 2, 2018For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported strong financial results for the second quarter and first half of 2018, demonstrating robust revenue growth and increased profitability. Total revenues for the quarter rose by 6.5% year-over-year, driven by higher passenger ticket revenues and increased onboard spending. Net income for the quarter saw a significant jump of 26.2%, reaching $466.3 million, with diluted Earnings Per Share (EPS) improving to $2.19 from $1.71 in the prior year. The company also announced a substantial acquisition, increasing its long-term debt and expanding its portfolio with the purchase of Silversea Cruises. The company's strategic focus on increasing pricing, enhancing onboard revenue initiatives, and managing costs appears to be paying off. Despite a slight increase in cruise operating expenses and marketing/selling/administrative expenses, the overall profitability improved significantly. RCL also highlighted its commitment to shareholder returns through dividends and an ongoing share repurchase program. The outlook for the remainder of 2018 remains positive, with projected Net Yield growth and continued capacity expansion through new ship deliveries.

Financial Highlights

50 data points
Beta

Revenue

$2.34B

43.8% Gross Margin

Net Income

$466.30M

19.9% Net Margin

EPS (Diluted)

$2.19

Total Assets

$24.06B

Cash & Equivalents

$109.00M

Free Cash Flow

$514.82M

Financial Statements
Beta
Revenue$2.34B
Cost of Revenue$1.31B
Gross Profit$1.02B
SG&A Expenses$312.92M
Operating Income$456.89M
Interest Expense$81.86M
Net Income$466.30M
EPS (Basic)$2.20
EPS (Diluted)$2.19
Shares Outstanding (Basic)211.67M
Shares Outstanding (Diluted)212.51M

Key Highlights

  • 1Total revenues increased by 6.5% to $2.34 billion for the second quarter of 2018 compared to $2.20 billion in the same period of 2017.
  • 2Net income for the second quarter of 2018 was $466.3 million, a 26.2% increase from $369.5 million in the second quarter of 2017.
  • 3Diluted Earnings Per Share (EPS) increased to $2.19 in the second quarter of 2018 from $1.71 in the prior year.
  • 4The company announced the acquisition of a 66.7% equity stake in Silversea Cruises for approximately $1.0 billion, which closed on July 31, 2018.
  • 5Gross Yields increased by 3.7% and Net Yields increased by 3.8% in the second quarter of 2018 compared to the same period in 2017.
  • 6Capital expenditures are projected to be approximately $4.7 billion for the full year 2018, including the Silversea acquisition and new ship deliveries.
  • 7Shareholders received dividends, and a new $1.0 billion common stock repurchase program was authorized in May 2018.

Frequently Asked Questions

Revenue growth was primarily driven by a 5.8% increase in passenger ticket revenues, attributed to a 2.7% increase in capacity (largely due to the addition of Symphony of the Seas), higher ticket prices on Europe and Asia/Pacific sailings, and favorable foreign currency exchange rates. Onboard and other revenues also increased by 8.3%, fueled by higher per-passenger spending through initiatives like beverage packages and specialty restaurants, and an increase in port activities.

The acquisition of Silversea Cruises, which closed after the reporting period on July 31, 2018, for approximately $1.0 billion, is expected to expand the company's ultra-luxury offerings. The financial statements for the period ending June 30, 2018, reflect transaction costs related to the acquisition and an increase in long-term debt to finance a portion of the purchase. Silversea Cruises' results will be consolidated with a three-month reporting lag starting in Q4 2018.

Royal Caribbean Cruises provided guidance for the full year 2018, expecting Net Yields to grow between 2.75% and 3.75% on a constant currency basis. Net Cruise Costs per APCD are expected to increase by approximately 2.0% on a constant currency basis. Adjusted Diluted EPS is projected to be between $8.70 and $8.90. The company also anticipates approximately 3.7% capacity growth for the full year.

The company has increased its long-term debt, partly to finance the Silversea acquisition, but remains in compliance with its debt covenants. RCL declared quarterly cash dividends of $0.60 per share in the first and second quarters of 2018. Additionally, a new $1.0 billion common stock repurchase program was authorized in May 2018, under which the company repurchased $137.5 million worth of shares in the second quarter of 2018.