ROYAL CARIBBEAN CRUISES LTD quarterly report, Q1 FY2013

Royal Caribbean Cruises Ltd. — Q1 2013 Form 10-Q

Reporting period: Three months ended March 31, 2013; unaudited consolidated results. Royal Caribbean operates multiple cruise brands and holds a 50% equity-method interest in TUI Cruises. Figures below are U.S. dollars unless noted.

Financial performance and liquidity

MetricQ1 2013Q1 2012Change
Total revenue$1,911.2 million$1,834.5 million+4.2%
Operating income$165.6 million$135.4 million+22.4%
Operating margin8.7%7.4%+1.3 percentage points
Net income$76.2 million$47.0 million+62.3%
Diluted EPS$0.35$0.21Up $0.14
Operating cash flow$241.3 million$215.2 million+$26.1 million
  • Passenger ticket revenue was $1,393.8 million, up from $1,352.2 million; onboard and other revenue was $517.4 million, up from $482.2 million. Net margin was 4.0%, versus 2.6%.
  • Fuel expense increased to $241.7 million from $229.0 million. Net interest expense declined to $90.2 million from $92.7 million. The filing does not report EBITDA.
  • Cash used in investing activities was $193.5 million, including $178.4 million of property and equipment purchases and a $19.5 million contribution to unconsolidated affiliates. Cash used in financing was $25.7 million. Cash increased $21.0 million to $215.9 million.
  • At March 31, total debt was $8.467 billion, net debt $8.251 billion, and shareholders’ equity $8.339 billion. Net debt-to-capital was 49.7%, compared with 50.0% at year-end 2012. Current debt maturities rose to $2.491 billion from $1.519 billion.
  • Liquidity was approximately $2.2 billion: $215.9 million cash and about $2.0 billion available under credit facilities. Working capital was negative $4.1 billion, largely reflecting current debt and advance customer deposits; management expects this industry-common deficit to continue.

Changes versus prior-year quarter

  • Revenue growth reflected higher ticket prices, increased onboard spending, and 1.5% greater capacity, partly offset by unfavorable currency effects. Net yields rose 2.7% reported and 3.6% on a constant-currency basis.
  • Occupancy was 104.9%, versus 104.6%; passenger count fell to 1.261 million from 1.278 million, while available passenger cruise days rose 1.5%.
  • Cruise operating expenses rose 2.2%. Net cruise costs per available passenger cruise day were broadly unchanged; net cruise costs excluding fuel per day were $103.24 versus $103.90.
  • Comprehensive income was $49.4 million versus $197.8 million, mainly reflecting a $22.6 million other comprehensive loss on cash-flow hedges in 2013 compared with a $147.5 million gain in 2012.

Outlook, commitments, and risks

  • 2013 guidance: diluted EPS $2.30–$2.50; net yields growth 2%–4%; net cruise costs per available passenger cruise day growth 2%–3%, including excluding fuel; capacity growth 1.3%. Fuel expense was estimated at $928 million, with 57% of forecast consumption hedged.
  • Q2 2013 guidance: diluted EPS $0.10–$0.15; net yields growth 2%–3% reported and approximately 3% constant currency; capacity growth 1.3%. Estimated fuel expense was $236 million, with 57% of forecast consumption hedged.
  • Management expected operating cash flows, available credit, and financing arrangements to cover capital spending and debt repayments for the next twelve months. It anticipated drawing a €365 million term facility before June 30, 2013 and said additional market financing for 2013–2014 maturities was likely.
  • Ship orders totaled approximately $3.5 billion, with $202.9 million deposited; expected capital expenditures were $0.7 billion in 2013, $1.2 billion in 2014, $1.2 billion in 2015, and $1.3 billion in 2016. A third Oasis-class ship became effective in March 2013, with expected entry into service in Q2 2016.
  • Management cited demand and economic conditions, fuel and other cost inflation, foreign exchange and interest-rate movements, competition, shipbuilding delays, safety or health incidents, geopolitical events, weather, and litigation among material risks. Fuel hedges covered 55% of expected 2013 consumption at quarter-end; a 10% fuel-price change was estimated to affect earnings by $26 million for the year.
  • The company reported compliance with debt covenants. Its senior unsecured ratings were BB (S&P) and Ba1 (Moody’s); specified long-term derivatives could require collateral if ratings remain below stated thresholds at future fifth anniversaries. No collateral was required at March 31, 2013.
  • A depreciation-estimate change for five ships was expected to increase 2013 operating and net income by about $11 million and EPS by $0.05; the Q1 effect was immaterial. A securities class action was dismissed with prejudice on April 18, 2013, though plaintiffs could appeal. A separate crew wage case remained subject to appeal activity; management said it would defend the claims.

Important facts for investors to verify

  • Refinancing and repayment plans for approximately $2.5 billion of debt due through March 2014, including the €745 million notes due January 2014.
  • Actual pricing, occupancy, onboard spending, fuel costs, and currency effects against the 2013 and Q2 outlook.
  • Funding, delivery timing, and foreign-currency exposure for the shipbuilding program and related capital commitments.
  • Whether customer deposits and operating cash flow sustain liquidity amid the working-capital deficit and elevated current maturities.
  • Any appeal in the dismissed securities action, developments in the crew wage matter, and potential exposure from the Brilliance of the Seas lease indemnity and TUI Cruises guarantees.