Royal Caribbean Cruises Ltd. - Q1 2009 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Royal Caribbean Cruises Ltd. for the period ended March 31, 2009. The company operates five cruise brands: Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Cruises, and CDF Croisières de France. The report highlights the impact of a continuing worldwide economic downturn, which has compressed booking windows and necessitated significant discounting to maintain demand.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $1,325.6 million | $1,429.1 million |
| Operating Income | $44.3 million | $137.6 million |
| Net (Loss) Income | $(36.2) million | $75.6 million |
| Diluted EPS | $(0.17) | $0.35 |
| Operating Cash Flow | $113.9 million | $301.8 million |
| Cash and Equivalents | $455.9 million | $441.1 million |
| Total Debt | $6,967.3 million | $7,011.4 million |
| Net Debt-to-Capital | 49.1% | 49.3% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 7.2% year-over-year. This was driven by a 12.9% decrease in Gross Yields and a 13.5% decrease in Net Yields due to aggressive discounting and lower occupancy (101.2% vs. 104.4%).
- Profitability: The company reported a net loss of $36.2 million compared to a net income of $75.6 million in Q1 2008. Operating income dropped significantly due to lower yields and increased depreciation.
- Cost Management: Total cruise operating expenses decreased slightly (1.0%) to $952.3 million. Net Cruise Costs per Available Passenger Cruise Day (APCD) decreased by 7.0%, aided by lower fuel prices and reduced marketing spend.
- Asset Transactions: The company sold the ship Celebrity Galaxy to TUI Cruises for approximately $315.0 million (locked via forward contracts), deferring a gain of $35.9 million to be recognized over the ship's remaining life.
- Dividends: The board discontinued quarterly cash dividends commencing in the fourth quarter of 2008; no dividends were paid in Q1 2009.
Guidance, Outlook, and Risks
- Q2 2009 Outlook: Management expects Net Yields to decrease approximately 17% compared to 2008. Net Cruise Costs per APCD are expected to decrease 11-12%. Earnings per share are forecast to range from $0.00 to a loss of $0.05.
- Full Year 2009 Outlook: Net Yields are expected to decrease 12-13%. Capacity is expected to increase 5.9% due to new ship deliveries (Celebrity Equinox and Oasis of the Seas). Full-year EPS is expected to be around $1.35, assuming current fuel prices.
- Capital Expenditures: Anticipated capital expenditures for 2009 are approximately $2.1 billion, including six ships on order with an aggregate cost of $6.5 billion.
- Risks and Contingencies:
- Credit Ratings: Moody's downgraded the company to Ba2 (negative outlook) and S&P to BB- (negative outlook) in early 2009, increasing financing costs and limiting market access.
- Litigation: Pending lawsuits include a class action regarding intellectual property infringement (dismissed but plaintiff granted leave to amend), a dispute with Rolls Royce regarding pod-propulsion failures (counterclaim alleges $100M+ damages), and an EEOC investigation into employment practices.
- Market Conditions: Significant exposure to fuel price volatility (48% hedged for 2009) and foreign exchange rates (9% of ship costs exposed to Euro fluctuations).
Investor Verification Checklist
- Verify the impact of the 13.5% decline in Net Yields on full-year profitability given the 5.9% capacity increase.
- Monitor the status of the $6.5 billion in ship purchase obligations and the availability of financing given recent credit rating downgrades.
- Review the outcome of the Rolls Royce litigation and the potential $100 million counterclaim.
- Assess the sustainability of the working capital deficit ($1.6 billion) and the reliance on customer deposits ($934.4 million) for liquidity.
- Track fuel price movements, as a 10% change in fuel prices could alter full-year fuel expenses by approximately $22 million.