Royal Caribbean Cruises today reported 2014 results and provided increased guidance for 2015.

Following its Double-Double trajectory, the company’s earnings for 2014 were up more than 40% over 2013 and are expected to be up a further 40% in 2015.

KEY HIGHLIGHTS

Full Year 2014:

• Net Yields were up 2.4% on a Constant-Currency basis (up 1.4% As-Reported).
• Net Cruise Costs (“NCC”) excluding fuel were down 0.6% on a Constant-Currency basis (down 0.8% As-Reported).
• Adjusted Net Income was $755.7 million, or $3.39 per share, versus Adjusted Net Income of $539.2 million, or $2.44 per share, in 2013.
• In the fourth quarter, the US Dollar strengthened significantly and the price of crude oil fell dramatically in world markets, but the price at-the-pump fell more slowly.  The net effect of both factors on the company was a reduction in EPS of $0.07 per share since October.
• Operationally, results were on target, but close-in bookings were at the low end of the scale whereas 2013’s very robust pattern was unusually strong. These weaker bookings were offset by improved expenses and equity investments.
• US GAAP Net Income was $764.1 million or $3.43 per share, versus $473.7 million, or $2.14 per share in 2013.

Full Year 2015 Outlook:

• Net Yields are expected to increase 2.5% to 4.5% on a Constant-Currency basis (in the range of down 0.5% to up 1.5% As-Reported).
• NCC excluding fuel are expected to be up 1% or better on a Constant-Currency basis (down 1.5% to 0.5% As-Reported).
• Adjusted EPS for 2015 is expected to be in the range of $4.65 to $4.85 per share – slightly higher than previous guidance of $4.55. Approximately $0.05 of the improvement is due to the combined effect of lower fuel costs offset by negative foreign exchange movements. The remainder of the difference is due to improved operational elements.
• In the second quarter of 2015, Royal Caribbean International will take delivery of Anthem of the Seas, the sister ship to the highly successful Quantum of the Seas that made her debut in the fourth quarter of 2014. This spring, TUI Cruises, the company’s German joint venture, will take delivery of its second new build, Mein Schiff 4.  Also this spring, the company will deliver Celebrity Century to its Chinese joint venture, SkySea Cruises.

“It’s been a good year and we are looking forward to another good one in 2015,” said Richard D. Fain, chairman and chief executive officer. “Our brands are performing at their strongest levels ever and our Double-Double program is solidly on track.”

FOURTH QUARTER RESULTS

Adjusted Net Income for the fourth quarter of 2014 was $70 million, or $0.32 per share, compared to Adjusted Net Income of $49.9 million, or $0.23 per share, in the fourth quarter of 2013.  US GAAP Net Income for the fourth quarter of 2014 was $109.8 million, or $0.49 per share.  Constant-Currency NCC excluding fuel were up 2.3%, better than the midpoint of guidance.  Net Yields on a Constant-Currency basis increased 2.7% versus guidance of 3.5%, driven by a weaker than anticipated Caribbean pricing environment.

The strengthening of the US Dollar, net of fuel, reduced EPS by $0.07.  Even though the worldwide price of crude oil dropped precipitously during the quarter, there is a lag between sharp movements in crude prices and the cost of fuel at-the-pump and bunker inventory on board our ships.  Bunker pricing net of hedging for the fourth quarter was $660 per metric ton and consumption was 347,000 metric tons. 

FULL YEAR 2014 RESULTS

Adjusted Net Income for the full year 2014 was $755.7 million, or $3.39 per share, compared to Adjusted Net Income of $539.2 million, or $2.44 per share, for the full year 2013.  This represents a 40% year-over-year increase in Adjusted Earnings.  US GAAP Net Income for the full year 2014 was $764.1 million, or $3.43 per share.  During the fourth quarter, tax reform in Spain eliminated limitations on the carry forward period for previously recognized net operating losses. This resulted in a net income benefit of $33.5 million, or $0.15 per share.  This benefit had not been anticipated in the company’s guidance and, in accordance with the company’s past approach to such items, was excluded from Adjusted EPS.

Net Yields for the full year 2014 increased 2.4% on a Constant-Currency basis. Onboard revenue yields were up 3.8%.

NCC excluding fuel were down 0.6% on a Constant-Currency basis, versus guidance of flat to slightly down.  The average bunker price net of hedging for full year 2014 was $693 per metric ton and consumption was 1,367,000 metric tons.

Towards the end of 2014, the US Dollar strengthened while the price of fuel in world markets declined, but at a more dramatic rate.  While the impact of currency is immediate, there is a lag before a change in the price of fuel flows through to the business.  There continues to be a relationship between foreign exchange and fuel, but the offsets are not exact (especially in the short term) and fluctuations a near certainty.  For 2014, the net impact of currency and fuel was a negative $0.07 to earnings relative to the latest guidance.

At the beginning of 2014, the company forecasted Adjusted Earnings of $3.20 to $3.40 per share.  In the first and second quarter, foreign exchange moved in the company’s favor and the company increased the midpoint of its guidance to $3.45, largely to reflect that improvement.  Later in the year, foreign exchange reversed direction, reversing the earlier benefit. The company’s final Adjusted EPS of $3.39 was at the top end of original guidance.  Interestingly, foreign exchange movements netted to approximately zero by year-end.

FULL YEAR 2015

Bookings over the past three months have been higher than prior year levels, and the company is experiencing a good, but typical WAVE season. Load factors and average per diems are both ahead of same time last year. In fact, the company’s booked position at the end of 2014 was the best such position in the company’s history. The company continues to experience highly competitive Caribbean pricing through the first quarter, but pricing is expected to be up low single digits for the remainder of 2015.  The company expects a Net Yield increase in the range of 2.5% to 4.5% on a Constant-Currency basis and in the range of down 0.5% to up 1.5% on an As-Reported basis for the full year.

NCC excluding fuel are expected to be up 1% or better on a Constant-Currency basis and down 1.5% to 0.5% on an As-Reported basis. 

“On the revenue front, although the first quarter remains a challenge, we are pleased with the way our summer season in the Caribbean, Europe, China and Alaska is coming together,” said Jason T. Liberty, chief financial officer. “On the expense side, our on-going focus on driving efficiencies throughout the business provides us with the ability to keep our costs firmly in line with our Double-Double expectations while strategically investing in technology enhancements and growing markets, like China.”

Taking into account current fuel pricing, interest rates, currency exchange rates and the factors detailed above, the company currently estimates 2015 Adjusted EPS will be in the range of $4.65 to $4.85 per share.  The company noted that since October, the fall in the price of oil has had a positive impact of $0.59 per share and the strengthening of the US Dollar has had a negative impact of $0.54 per share.

FIRST QUARTER 2015

Constant-Currency Net Yields are expected to be down 1.5% to 2.0% in the first quarter of 2015 (down approximately 5% As-Reported). This includes the previously announced shift of holiday sailings from the first quarter of each year to the fourth quarter. While this shift has no impact on the year as a whole, it accounts for most of the decline in first quarter yields. In addition, the overhang of the highly promotional Caribbean environment in 2014 continues through the first quarter of 2015, also impacting yields. Yields in the second, third and fourth quarters are expected to be higher, and will be up in the mid-single digits.

NCC excluding fuel are expected to be up 2.0% to 3.0% on a Constant-Currency basis (flat to up 1% As-Reported).  Based on current fuel pricing, interest rates and currency exchange rates and the factors detailed above, the company expects first quarter Adjusted EPS to be in the range of $0.10 to $0.15 per share.

FUEL EXPENSE AND SUMMARY OF KEY GUIDANCE STATS

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 $207 million and $806 million of fuel expense in its first quarter and full year 2015 guidance, respectively.

Forecasted consumption is 52% hedged via swaps for the remainder of 2015 and 50%, 35%, and 15% hedged for 2016, 2017 and 2018, respectively.  For the same four years, the average cost per metric ton of the hedge portfolio is approximately $636, $585, $565 and $542, respectively. 

The company provided the following fuel statistics for the first quarter and full year 2015: