10-QPeriod: Q3 FY2018

ROYAL CARIBBEAN CRUISES LTD Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 26, 2018For Securities:RCL

Summary

Royal Caribbean Cruises Ltd. (RCL) reported a strong third quarter and nine-month performance for 2018, demonstrating robust revenue growth and improved profitability. Total revenues increased by 8.8% for the quarter and 5.7% for the nine months, driven by higher passenger ticket prices and increased capacity from new ship additions like Symphony of the Seas. The company also successfully integrated the acquisition of Silversea Cruises, expanding its presence in the ultra-luxury and expedition markets. Despite rising operating costs, including fuel and marketing expenses, RCL maintained healthy operating margins, showcasing effective cost management and pricing power. Financially, the company saw a significant increase in net income, rising to $810.4 million in Q3 2018 from $752.8 million in Q3 2017, with diluted EPS reaching $3.86. For the nine months, net income was $1.5 billion. The company also reported a substantial increase in cash flow from operations and maintained a strong liquidity position, supported by available credit facilities. RCL's outlook for the full year 2018 was positive, projecting solid growth in Net Yields and Adjusted Earnings per Share, reflecting confidence in continued demand and operational execution.

Financial Highlights

51 data points
Beta

Revenue

$2.80B

49.5% Gross Margin

Net Income

$810.39M

29.0% Net Margin

EPS (Diluted)

$3.86

Total Assets

$27.09B

Cash & Equivalents

$254.82M

Free Cash Flow

$519.15M

Financial Statements
Beta
Revenue$2.80B
Cost of Revenue$1.41B
Gross Profit$1.38B
SG&A Expenses$325.17M
Operating Income$799.73M
Interest Expense$86.51M
Net Income$810.39M
EPS (Basic)$3.88
EPS (Diluted)$3.86
Shares Outstanding (Basic)209.05M
Shares Outstanding (Diluted)209.93M

Key Highlights

  • 1Total revenues increased by 8.8% to $2.8 billion for Q3 2018 and by 5.7% to $7.2 billion for the nine months ended September 30, 2018, compared to the prior year periods.
  • 2Net income rose to $810.4 million ($3.86 diluted EPS) in Q3 2018, up from $752.8 million ($3.49 diluted EPS) in Q3 2017. For the nine months, net income was $1.5 billion.
  • 3The company successfully completed the acquisition of a 66.7% equity stake in Silversea Cruises on July 31, 2018, for $1.02 billion, expanding its ultra-luxury and expedition offerings.
  • 4Capacity increased by 7.7% in Q3 2018 primarily due to the addition of Symphony of the Seas and Azamara Pursuit, contributing to higher passenger ticket and onboard revenues.
  • 5Despite higher cruise operating expenses and marketing, selling, and administrative expenses, operating income increased to $799.7 million in Q3 2018.
  • 6Net cash provided by operating activities increased by $292.4 million to $2.7 billion for the first nine months of 2018.
  • 7The company provided a positive outlook for full-year 2018, projecting Adjusted EPS between $8.75 and $8.85.

Frequently Asked Questions

The acquisition of Silversea Cruises on July 31, 2018, for $1.02 billion expanded RCL's portfolio into the ultra-luxury and expedition market. While the acquisition contributed to increased marketing, selling, and administrative expenses due to transaction costs ($25.9 million in Q3 2018), it is expected to drive long-term capacity growth. Silversea's results are consolidated with a three-month reporting lag, and its impact on the full-year 2018 financial statements was not considered material.

Fuel expenses increased by $9.5 million in Q3 2018 compared to Q3 2017, and by $6.1 million for the nine-month period, reflecting a higher cost per metric ton. Total cruise operating expenses increased by 7.1% for the quarter and 4.0% for the nine months, largely due to increased capacity and higher fuel costs. Despite these increases, effective revenue management and operational efficiencies helped mitigate some of the impact on profitability.

RCL provided a positive outlook for the full year 2018, projecting Adjusted Earnings per Share in the range of $8.75 to $8.85. The company anticipated continued growth in Net Yields and Net Cruise Costs per APCD, excluding fuel. For Q4 2018, projected Net Yields were expected to be between 5.5% and 6.0% (As Reported). RCL also highlighted a robust newbuild pipeline with 14 ships on order across its brands, indicating a strategy for continued capacity expansion and fleet modernization.

Currency fluctuations had a mixed impact. For the quarter ended September 30, 2018, unfavorable foreign currency exchange rates decreased total revenues by $20.4 million. However, for the nine months ended September 30, 2018, favorable currency exchange rates increased total revenues by $32.4 million. On the expense side, currency movements resulted in a decrease in cruise operating expenses for the quarter but an increase for the nine-month period.