Royal Caribbean Cruises Ltd. today reported better than expected third quarter results and increased its earnings outlook for full year 2012.

KEY HIGHLIGHTS

Results For the Third Quarter 2012:

Both close-in booking activity and cost controls were stronger than the company anticipated in its previous guidance. 

•  Net Yields increased 0.1% on a Constant-Currency basis (down 2.4% As-Reported);
•  Net Cruise Costs (“NCC”) excluding fuel increased 2.0% on a Constant-Currency basis (declined 0.2% As-Reported); and
•  Net income was $367.8 million, or $1.68 per share, versus net income of $399.0 million, or $1.82 per share, in 2011.

Fourth Quarter 2012:

•  Net Yields are expected to increase approximately 1% on both a Constant-Currency and As-Reported basis;
•  NCC excluding fuel are expected to be up approximately 1% on a Constant-Currency basis and flat to up 1% on an As-Reported basis; and
•  Earnings per share are expected to be within a range of ($0.02) to $0.08.

Full Year 2012:

•  Net Yields are expected to increase approximately 3% on a Constant-Currency basis and 1% to 2% on an As-Reported basis;
•  NCC excluding fuel are expected to be up approximately 4% on a Constant-Currency basis and up 2% to 3% on an As-Reported basis; and
•  Earnings per share are expected to be within a range of $1.85 to $1.95.

“The strong third quarter certainly validates our confidence in our business model,” said Richard D. Fain, chairman and chief executive officer.  “Strong close-in demand and our focus on costs drove substantially better results than expected.  I am especially gratified that we are still seeing price increases in a year marked by so many external pressures,” Fain continued.

Third Quarter 2012 Results

Royal Caribbean Cruises Ltd. today announced third quarter 2012 net income of $367.8 million, or $1.68 per share, versus income of $399.0 million, or $1.82 per share, in the third quarter of 2011. 

Close-in bookings for the third quarter across most itineraries — including Europe — were stronger than anticipated, resulting in a Net Yield increase of 0.1% on a Constant-Currency basis.  NCC excluding fuel were also better than anticipated and increased 2.0% on a Constant-Currency basis (declined 0.2% As-Reported).  Approximately 200 basis points of the Net Yield improvement and approximately 220 basis points of the NCC excluding fuel increases during the quarter relate to previously announced deployment initiatives and changes to the company’s international distribution system.

Bunker pricing net of hedging for the third quarter was $639 per metric ton and consumption was 334,200 metric tons. 

Outlook

Fourth Quarter 2012

As the company anticipated in February, the tragedy in Italy had its biggest yield impact in the second and third quarters of the year.  The effect of the incident on bookings has continued to wane and fourth quarter 2012 Net Yields are expected to increase approximately 1% on both Constant-Currency and As-Reported bases.  Excluding previously referenced deployment initiatives and changes to the company’s international distribution system, Net Yields for the quarter are expected to be approximately flat.

For the fourth quarter of 2012, NCC excluding fuel are expected to be up approximately 1% on a Constant-Currency basis and flat to up 1% on an As-Reported basis.  Excluding the deployment initiatives and changes to the company’s international distribution system, NCC excluding fuel are expected to be approximately flat on both a Constant-Currency and As-Reported basis.

Full Year 2012

The company increased its guidance for full year earnings per share by $0.15 to a range of $1.85 to $1.95. This increase has been mainly driven by stronger than anticipated revenue (+$0.06 per share) and expense reduction (+$0.06 per share).  The remaining $0.03 per share improvement is principally due to currency benefits net of oil price increases.

For the full year of 2012, Net Yields are expected to increase approximately 3% on a Constant-Currency basis and to be up  1% to 2% on an As-Reported basis.  Approximately 200-250 basis points of the expected improvement in Net Yields relates to deployment initiatives and changes to the company’s international distribution system.

For the full year, NCC excluding fuel are expected to increase approximately 4% on a Constant-Currency basis (up 2% to 3% As-Reported).  Excluding deployment initiatives and changes to the company’s distribution system, Constant-Currency NCC excluding fuel are expected to be flat to up 1%.

Capacity Additions

The company noted that it is engaged in negotiations for the possible construction of an Oasis-type newbuild that would be delivered in middle to late 2016.  While the company has not entered into any agreement at this time, it hopes to do so before year’s end.  The new ship is expected to cost less on a per berth basis than either of the first two Oasis-class vessels.

“The Oasis of the Seas and Allure of the Seas have proven themselves to be exceptionally attractive ships by generating the highest guest satisfaction ratings in the fleet coupled with very compelling financial returns,” said Richard D. Fain, chairman and chief executive officer.  Fain continued, “Ordering another such ship for delivery in 2016, at a lower cost, with better energy efficiency is very consistent with our balanced goals of prudent growth, return improvement and debt reduction.”

2013 Outlook

The company noted that while it is very early in the 2013 bookings cycle and visibility at this time is limited, the company is encouraged by the trends so far.  For the year 2013, booked load factors and average per diems are both slightly higher currently than at this same time last year. This is particularly encouraging in light of the fact that these prior year comparisons relate to bookings before the Costa Concordia incident which occurred in January 2012.

Read the full report on Royal Caribbean’s third quarter here.

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 $229 million and $910 million of fuel expense in its fourth quarter 2012 and full year 2012 guidance, respectively. 

Forecasted consumption is now 58% hedged via swaps for the remainder of 2012 and 54%, 45%,  25% and 7% hedged for 2013, 2014, 2015 and 2016, respectively.  For the same five-year period, the average cost per metric ton of the hedge portfolio is approximately $522, $568, $623, $610 and $582, respectively. 

During the third quarter the company fully liquidated its previously disclosed WTI fuel option portfolio resulting in a $1.8 million gain.  Year-to-date through September, the company has recorded a net loss of $5.7 million on this portfolio.