Royal Caribbean Reports 55 Percent Rise in 3Q Profits

Royal Caribbean Cruises Ltd. (RCCL) on Oct. 26 announced net income for the third quarter of $356.8 million, or $1.64 per share, compared to net income of $230.4 million, or $1.07 per share, in the third quarter last year. This represents a 55 percent increase in third-quarter earnings year-over-year.

RCCL said third-quarter close-in bookings were stronger than expected while operating costs and fuel consumption were lower. Earnings-per-share expectation has been increased for the full year 2010 from $2.43 to $2.47. Fourth quarter earnings per share is expected to be in the range of 8 to 12 cents after taking into account two incidents that cost the company about 5 cents.

While it is early in the booking cycle, RCCL said 2011 yields are trending positively in all four quarters and the company expects yield increases in 2011 comparable to 2010. As a result, early earnings-per-share modeling indicates that next year will set a new EPS record for the company.

Revenues improved to $2.1 billion in the third quarter compared to $1.8 billion in the same period last year, as a result of capacity increases and yield improvements. Continued fuel conservation efforts resulted in better-than-expected fuel usage of 342,400 metric tons during the third quarter. At-the-pump pricing (including the benefit of hedging) was in line with earlier calculations at $481 per metric ton. Altogether, the quarter’s fuel expenditures were approximately $5 million better than previous calculations.

RCCL reported that the current revenue environment has remained stable and continues to be characterized as slowly improving. In addition, booked load factors and average per diems continue to run ahead of the same time last year for the remainder of the year. Fourth-quarter net yields are expected to improve approximately 5 percent while full-year 2010 net yields are expected to improve approximately 4 to 5 percent on both constant currency and as-reported basis. Operational disruptions on Pullmantur’s Pacific Dream and the Celebrity Century have negatively impacted the company’s fourth quarter earnings-per-share guidance by approximately 5 cents.

While recognizing it is still too early to provide definitive guidance to 2011, RCCL reported that early indications are encouraging. At today’s exchange rates, the company expects full-year 2011 net yields to increase by a similar proportion to 2010. The company also noted that its business is seasonal and that the biggest yield declines caused by the recession impacted the second and third quarters more than they impacted the first and fourth quarters.

As a result, the company expects that the most meaningful yield recovery in 2011 will occur correspondingly during those same two summer quarters. First-quarter 2011 net yields are currently expected to improve 2 to 4 percent. Taking into account these revenue trends as well as current fuel prices and exchange rates, the company expects 2011 earnings per share to exceed its previous record of $3.26 per share.

With only one ship delivery in 2011, capital commitments are dropping by more than 50 percent from 2010 levels. This slowing capacity investment, combined with improving profitability, is expected to generate meaningful free cash flow. Delivery of Royal Caribbean International’s Allure of the Seas is scheduled for Oct. 28. The Allure of the Seas will sail year-round Caribbean itineraries from Port Everglades and begins revenue service on Dec. 1.

Based on current ship orders, projected capital expenditures for 2010, 2011 and 2012 are $2.2 billion, $1 billion, and $1 billion, respectively. Capacity increases for the same three years are 11 percent, 7.5 percent and 1.8 percent, respectively.