Royal Caribbean Reports Third Quarter Results

Royal Caribbean Cruises Ltd.  today reported its third quarter 2011 results and updated its outlook for the remainder of the year. 

Revenue yields, expenses and operating income all performed better than expected during the quarter. 

As a result, year-over-year Net Income grew 14% to $399 million.  Included in third quarter results is an $0.08 per share charge in Other Income/(Expense) related to mark-to-market revaluations of the company’s fuel option portfolio. 

For the full year, the company’s profit expectations have remained stable except for this revaluation charge and changes in currency exchange rates. 

Key Highlights:

Results For the Third Quarter 2011:

Net income was $399.0 million, or $1.82 per share, versus $350.2 million, or $1.61 per share, in 2010;

Net Yields increased 5.3% (2.6% on a Constant-Currency basis.)  Net Cruise Costs per APCD (“NCC”) excluding fuel increased 2.5% (0.7% on a Constant-Currency basis.)

Year Guidance:  For the full year 2011, the company’s Constant-Currency Net Yield improvement expectations are essentially unchanged at 2% to 3%.  Including currency movements, full year Net Yields are expected to  increase approximately 4%.

Full year 2011 EPS is expected to be within a range of $2.70 to  $2.80, a $0.15 reduction from prior guidance primarily due to the strengthening of the U.S. Dollar and the fuel option revaluation  loss.

2012 Outlook: Though economic uncertainty is elevated and it is still early in the booking cycle, 2012 demand thus far has been solid.  Booked  load factors and pricing are both running ahead of this time last year, which supports the company’s expectation of continued yield accretion during 2012.

“It was gratifying to beat both our revenue and cost forecasts in the third quarter despite the turmoil in the worldwide financial markets,” said Richard D. Fain, chairman and chief executive officer.  Fain continued, “The strength of our brands, combined with the value of our product, provides us with a high degree of economic resilience, and both our 2011 results and our 2012 booking patterns validate this.”

Third Quarter 2011 Results

Royal Caribbean Cruises Ltd. today announced net income of $399.0 million, or $1.82 per share, versus $350.2 million, or $1.61 per share, in 2010.  Results include an $0.08 per share mark-to-market revaluation loss on the company’s WTI fuel option portfolio.  Absent the revaluation charge, third quarter earnings per share totaled $1.90.

Revenues improved to $2.3 billion in the third quarter of 2011 compared to $2.1 billion in the third quarter of 2010 as a result of capacity increases and yield improvements.  Net Yields for the third quarter of 2011 increased 5.3% (2.6% on a Constant-Currency basis).  The company experienced particularly strong demand for its Caribbean and Alaska products during the third quarter with both markets experiencing increases in excess of 15% in ticket yields and Alaska yields reaching a historical high.

Costs in the third quarter of 2011 remained under tight control with NCC excluding fuel increasing only 0.7% on a Constant-Currency basis (2.5% on an as-reported basis).

Bunker pricing for the third quarter was consistent with earlier calculations at $608 per metric ton and consumption was 333,000 metric tons.  During the quarter the company booked an $0.08 per share mark-to-market revaluation loss on its WTI fuel option portfolio.  This loss partially offsets the revaluation gains the company recorded earlier in the year.  As previously noted, these fuel options have been entered into for the purpose of protecting the company against spikes in oil prices.  However, the options are not treated as hedges for accounting purposes and therefore can cause swings in quarterly earnings.  Overall, they have been a successful strategy despite the swings they have caused.

2011 Outlook

The company provided the following updates to its forward guidance:


Constant-Currency yield growth expectations for the year are unchanged at 2% to 3%.  Recent strengthening of the U.S. Dollar has reduced full year 2011 as-reported Net Yield expectations slightly to an increase of approximately 4%.  For the fourth quarter, the company expects Net Yields to increase 3% to 4% on both an as-reported and a Constant-Currency basis.  Close-in demand was strong in the third quarter, but the company does not anticipate this strength will continue for the seasonally weaker fourth quarter.


For the full year, the company expects NCC excluding fuel to increase 2% to 3% on an as-reported basis and 1% to 2% on a Constant-Currency basis.  The comparable figure for the fourth quarter is expected to be approximately 4% on an as-reported basis and 3% to 4% on a Constant-Currency basis.

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 $204 million and $761 million of fuel expense in its fourth quarter 2011 and full year 2011 guidance, respectively.

Forecasted consumption is now 57% hedged via swaps for the remainder of 2011 and 55%, 47%, 30% and 20% for 2012, 2013, 2014 and 2015, respectively.  For the same five-year period, the average cost per metric ton of the remaining hedge portfolio is approximately $490, $520, $520, $575 and $580, respectively.

In addition to the above-mentioned fuel hedges, the company also utilizes fuel options to further protect against escalating fuel prices.  The company recently sold its options for 2012, which were at a strike price of $100 and will recognize an associated small gain in the fourth quarter. The remaining WTI fuel option portfolio consists of options expiring in 2013 at a strike price of $90 bbl that covers an estimated 11% of 2013 consumption.

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