Royal Caribbean reports strong Q1 results. Do you invest in cruise companies?

[Jason]

Royal Caribbean Cruises Ltd. today reported first quarter results and reaffirmed its outlook for full year 2013.

KEY HIGHLIGHTS

Results For the First Quarter 2013:

Improved earnings driven by stronger revenue and the timing of expenses.

Net Yields increased 3.6% on a Constant-Currency basis (2.7% As-Reported);

Net Cruise Costs ("NCC") excluding fuel decreased 0.5% on a Constant-Currency basis (decreased 0.6% As-Reported); and

Net income was $76.2 million, or $0.35 per share, versus net income of $47.0 million, or $0.21 per share, in 2012.

Full Year 2013:

Overall, demand trends appear consistent with the company's earlier expectations. Constant-Currency Net Yield and EPS guidance for the year remain unchanged at this time.

Net Yields are expected to increase 2% to 4% on both Constant-Currency and As-Reported bases;

NCC excluding fuel are expected to be up 2% to 3% on both Constant-Currency and As-Reported bases; and

Earnings per share are expected to be within a range of $2.30 to $2.50.

"It was a gratifying first quarter," said Richard D. Fain, chairman and chief executive officer. "Ticket revenues were better than expected, costs were well controlled and it was encouraging to see record guest satisfaction and noticeable improvements in onboard spending as a result of our revitalization efforts," Fain continued.

First Quarter 2013 Results

Royal Caribbean Cruises Ltd. today announced first quarter 2013 net income of $76.2 million, or $0.35 per share, versus net income of $47.0 million, or $0.21 per share, in the first quarter of 2012.

Both onboard revenue and ticket pricing improved, contributing to a Net Yield increase of 3.6% on a Constant-Currency basis. NCC excluding fuel were also better than anticipated, primarily due to timing, and declined 0.5% on a Constant-Currency basis.

Bunker pricing net of hedging for the first quarter was $699 per metric ton and consumption was 5,000 metric tons lower than expected at 345,900 metric tons. Versus the first quarter of 2012, fuel consumption per APCD was 1.2% lower.

Outlook

Full Year 2013

Since the beginning of the year booking volumes have averaged 5% ahead of the prior year. At this time, full year booked load factors and APDs are higher than the same time last year. The overall demand environment is in-line with the company's expectations from February, but as usual there are regional fluctuations. Bookings from North America have remained strong since the beginning of the year, with the exception of a modest disruption to Caribbean demand which the company attributes to adverse industry media coverage. Despite the difficult economic news in the EU, demand from European sourced guests strengthened in early February and the company expects pricing improvement from the region for the year. Demand from China has weakened somewhat due to itinerary changes related to the territorial dispute with Japan.

At this time, the company expects that the negative effects from the adverse industry media coverage in March and itinerary changes in Asia will be offset by the favorable performance in the first quarter and a slightly better outlook for Europe. As a result, full year 2013 Constant-Currency yield expectations remain unchanged from the company's February guidance of an increase of 2% to 4%.

"Our brands have continued to generate solid demand despite a soft economy in Europe and recent adverse industry media coverage," commented Brian J. Rice, vice chairman and chief financial officer. Rice continued, "The consumer continues to recognize that we offer a great vacation at an excellent value."

Based on current fuel pricing and currency exchange rates, NCC excluding fuel are expected to be up 2% to 3% both on Constant-Currency and As-Reported bases.

The company does not forecast changes in foreign currency exchange rates or oil prices. Movements in these two variables are often offsetting, with the recent decrease in oil prices largely negating the unfavorable impact of currency exchange movements.

Based on current fuel pricing and currency exchange rates, the company continues to expect that 2013 earnings will be in the range of $2.30 to $2.50 per share.

Second Quarter 2013

Constant-Currency Net Yields are expected to increase approximately 3% in the second quarter of 2013. NCC excluding fuel are expected to increase approximately 3% on a Constant-Currency basis, due in part to timing shifts of marketing activities from the first quarter to the second quarter.

Based on current fuel pricing and currency exchange rates, the company expects that second quarter earnings will be in the range of $0.10 to $0.15 per share.

2014 Deployment Update

The company recently opened the majority of its 2014 deployment offerings and announced a two-month European summer micro-season for the Oasis of the Seas that complements the vessel's scheduled maintenance drydock in Rotterdam. Demand for these sailings has been exceptionally strong.

Despite this micro-deployment, the company expects to further reduce its European deployment year-over-year by another 10% and also expects that European itineraries will be approximately 25% of its overall 2014 capacity.

FUEL EXPENSE & GUIDANCE SUMMARY

Fuel Expense

The company does not forecast fuel prices, and its fuel cost calculations are based on current at-the-pump prices, net of hedging impacts. Based on today's fuel prices the company has included $236 million and $928 million of fuel expense in its second quarter 2013 and full year 2013 guidance, respectively.

Forecasted consumption is now 57% hedged via swaps for the remainder of 2013 and 55%, 40%, 20% and 5% hedged for 2014, 2015, 2016 and 2017, respectively. For the same five-year period, the average cost per metric ton of the hedge portfolio is approximately $568, $623, $635, $602 and $638, respectively.

Liquidity and Financing Arrangements

As of March 31, 2013, liquidity was $­­­2.2 billion, including cash and the undrawn portion of the company's unsecured credit facilities. The company noted that scheduled debt maturities for 2013, 2014, 2015 and 2016 are $1.5 billion, $1.5 billion, $1.1 billion and $1.0 billion, respectively.

The company will continue to opportunistically approach the prepayment and refinancing of its 2013 and 2014 scheduled maturities.

Capital Expenditures and Capacity Guidance

Based upon current ship orders, projected capital expenditures for 2013, 2014, 2015 and 2016 are $700 million, $1.2 billion, $1.2 billion and $1.3 billion, respectively.

Capacity increases for 2013, 2014, 2015 and 2016 are 1.3%, 1.0%, 6.9% and 4.8%, respectively. The company's annualized capacity growth rate from 2012 to 2016 remains at a historically low rate of 3.5%.

Source: Royal Caribbean International

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[DebbieandJerry]

Great article. It's always so much better to read something positive about the cruising industry.

The expenditures are amazing

[WeCruiseToo]

It’s nice to see that Royal Caribbean is doing well – even if we haven’t invested with them. We do have some Carnival stock that’s doing surprisingly well. I was looking to get some more over the last few months but the price never really went down much. Go figure.