RCL turns the corner

2023-07-29T10:44:22+00:00 July 29th, 2023|Finance|

Royal Caribbean Group (RCL) has reported second quarter earnings per share (EPS) of $1.70 and adjusted EPS of $1.82.

These results were significantly better than the company’s guidance, due to stronger pricing on closer-in demand and further strength in on board revenue, RCL said.

As a result of the accelerating demand environment for its vacation experiences, the company is increasing its 2023 adjusted EPS guidance by 33% to $6 – $6.20.

“Our brands continue to fire on all cylinders, resulting in record yields and second quarter earnings significantly exceeding our expectations,” said Jason Liberty, RCL President and CEO “Demand for cruising and our brands is exceptionally strong and we have seen another step change in booking volumes and pricing, leading us to now expect double-digit net yield growth for the full year. We also expect to achieve record adjusted EBITDA per APCD and return on invested capital this year and are well on our way toward achieving our Trifecta goals.”

Total revenues were a record $3.5 bill in 2Q23, net income was $458.8 mill or $1.70 per share (a loss of $0.5 bill in 2Q22), adjusted net income was $491.7 mill or $1.82 per share (an adjusted net loss of $0.5 bill in 2Q22), adjusted EBITDA was a record $1.2 bill and operating cash flow was $1.4 bill.

Gross margin yields increased 13.1% as-reported, and net yields increased 12.9% in constant-currency (12.6% as-reported), compared to 2Q19.

Gross cruise costs per available passenger cruise day (APCD) increased 10.9% as-reported, and net cruise costs (NCC), excluding fuel, per APCD increased 9% in constant-currency (8.6% as-reported), compared to the second quarter of 2019.

Favourable timing of operating expenses was offset by the increase in stock compensation expense, due to the rise in share price and expected financial performance.

For the full year, net yields are expected to increase 11.5% to 12% in constant-currency and as-reported, compared to 2019.

NCC, excluding fuel, per APCD is expected to be up by about 7% in constant-currency (6.7% as-reported), compared to 2019.

The cost increases, relative to previous guidance, was driven by an increase in stock compensation  expense, due to the rise in share price and expected financial performance.

For 3Q23, the net yields are expected to increase 13.5% to 14% in constant-currency (14% to 14.5% as-reported), compared to 3Q19.

NCC, excluding fuel, per APCD is expected to increase by around 11.2% in constant-currency and as-reported, compared to 3Q19.

About half of the cost increase, compared to 2019, is related to structural costs, timing shift of operating expenses from the second quarter, and increase in stock compensation expense.

Adjusted third quarter EPS are expected to be in the range of $3.38 to $3.48 per share.

Second quarter revenue significantly exceeded the company’s guidance, due to higher pricing and higher shipboard revenue across the company’s key itineraries, including the Caribbean and Europe. The 2Q23 load factor was 105%.

Booking volumes in 2Q23 remained significantly higher than the corresponding period in 2019 and at record pricing levels. Demand for 2023 sailings has significantly exceeded expectations and bookings for 2024 sailings are up significantly versus all prior years at record prices.

Demand from the North American consumer has remained incredibly strong throughout the year, and booking volumes from European consumers booking European cruises this summer have accelerated.

The further increase in yield expectations for the year is the result of higher pricing and on board revenue expectations for key itineraries, particularly in North America and Europe.  Consumer spending on board, as well as pre-cruise purchases, continue to significantly exceed 2019 levels driven by greater participation at higher prices.

As of June 30, 2023, the Group’s customer deposit balance was at a record-high $5.7 bill and the Group’s liquidity position was $3.7 bill, which includes cash and cash equivalents and undrawn revolving credit facility availability.

During the second quarter, the company generated $1.4 bill in operating cash flow and repaid $1.6 bill of debt, including $392 mill of its 11.5% senior secured notes due June, 2025.

The company also settled its 4.25% convertible notes in June by utilising $338 mill of cash on hand and issuing 373,505 shares. In July, the company redeemed, utilising cash on hand, an additional $300 mill of its 11.5% senior secured notes, due June 2025.

“Strengthening the balance sheet continues to be a top priority,” said Naftali Holtz, RCL’s CFO. “Better than expected financial results and cash flow have allowed us to accelerate reduction in both leverage and debt levels. We expect to continue improving the balance sheet and moving us closer to achieving our Trifecta goal of returning to investment grade metrics.”

Capital expenditures for full year are expected to be $4.2 bill. The company took delivery of ’Silver Nova’ and expects to take delivery of another two ships, ’Icon of the Seas’ and ‘Celebrity Ascent’, in 2023. All ship orders have committed financing in place. Non-new ship related capital expenditures are expected to be $0.5 bill.

Capacity changes for 2023, 2024, 2025, and 2026 are expected to be 13.5%, 8%, 6%, and 5%, respectively. These figures do not include potential ship sales or additions that the company may elect in the future, RCL said.