Royal Caribbean 2008 Q3 Earnings

While Royal Caribbean  Cruises (RCL) posted record earnings for Q3, the market has turned so erratic over the past six weeks that forecasting for next year has become impossible, company executives said in their Q3 earnings call.

The company’s guidance for Q4 is earnings per share from $0.05 to $0.10 and from $2.73 to $2.78 for the full year, compared to actual earnings last year of $0.33 for Q4 and $2.8: for the full year.


RCL reported net income of $411.9 million, or $1.92 per share, on revenues of $2.1 billion for the third quarter ended Sept. 30, 2008, compared to net income of$395 million, or $1.84 per share, on revenues of $2.0 billion for the same period last year.

The earnings improvement was due primarily to increased capacity, higher yields and lower cruise costs, partially offset by higher fuel prices, according to a company statement. Also included is a legal settlement of some $17 .6 million.

Operating income was down 4.3 percent year-over-year, and the increase in net earnings seemed largely due to “other income and expenses” being $38 million less than last year.

 Passengers spent an average of $200. IO per person per day on tickets, compared to$ I 5.55 last year. Onboard spending per day per passenger was $75.49 in the third quarter of this year, compared to $72.88 last year.

Until a month ago, bookings remained strong while operating costs and fuel costs were coming down, commented RCL Chairman and CEO Richard Fain. But now the company is facing a new reality after fundamental changes, and need to recalibrate its forecast based on consumer behavior, Fain said. “The current turmoil has disrupted our normal business pattern,” he added.

“The feedback we get from travel agents is that consumers are as confused as anyone and are holding off making decisions.

“There has not been enough time for the consumer to stabilize – nor for us,” Fain said. Brian Rice, executive vice president and CFO, said he would describe the consumer today “like a deer in the headlights.” After 9/11, took consumers six weeks to regain a level of confidence, but now he is not sure when they will be back, he said. Meanwhile, Rice said: “We are focused on ensuring our short-term orderbook (bookings), but do not see any wholesale changes at this point. We have seen in the past that the consumer works through these cycles.

“We have a pretty good orderbook already so we have some tolerance for Q4. We are seeing weaker demand for close-in bookings and somewhat lower on board spending,” he added.

Rice said that the recent events have taken the economic downturn to a new level and impacted consumer outlook. In August, close-in pricing started to turn flat, he said, and deteriorated further in September. In the last two weeks, bookings appear to have leveled off.

“The environment is so erratic that it is impossible to predict consumer behavior in the short term,” Rice said. “We are prepared to take aggressive pricing action for Q4 and for January and February of next year.” Rice also said there may be instances when discounting may have diminishing returns and ships may sell at less than full capacity. However, so far load factors are in excess of l 00 percent in the foreseeable future, he said.

Forward Thinking 

“We must look at all aspects of our business and prepare for a different market than we had hoped for. And it is important that we are proactive and reduce our risk profile,” Fain said. RCL has $1.4 billion in liquidity, and recent initiatives will generate annual savings of $125 million, he said.

“We have slowed capital spending,” Fain said. “Forty percent of our revenues will be from outside of North America in 2009, compared to 30 percent last year. We have financing arrangements in place for all our new ships. “We can weather the situation even for a sustained period of time.”

Looking forward to the time when newbuilding orders run out – with no more new ships coming, will create an even better supply and demand situation, Fain said.

“Under the current circumstances, we do not envision ordering any more ships,” he added. RCL expects to increase its capacity 6.9 percent in 2009; 12.8 percent in 2010; 7.1 percent in 2011, and 3.0 percent in 2012. Fain did not comment on the agreement with STX Europe to build a fourth Freedom-class ship for 2011 delivery. This agreement has not yet been converted into a contract.

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