Royal Caribbean Cruises Ltd. (RCL), parent company of Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises, reported strong 2017 annual earnings of $7.53 per share.
That beat the company's self-imposed “Double-Double” financial goals for earnings-per-share and return on invested capital. It also beat the mid-year guidance it had provided to financial analysts.
Even better? RCL's 2018 adjusted earnings are expected to be in the range of $8.55 to $8.75 per share. In addition, the company's forward-looking booked position right now is stronger than last year at the same time and at higher pricing.
To reward its employees, the company separately today announced an $80 million equity bonus (see below) for all employees except corporate officers; each employee will receive 5 percent of their annual salary in equity.
2017 Financial Results
RCL's net income – as determined by generally accepted accounting procedures (GAAP) and by adjusted net income – was $1.63 billion or $7.53 per share for the full year 2017. That compares with last year’s GAAP net income of $1.28 billion, or $5.93 per share, and adjusted net income of $1.31 billion, or $6.08 per share.
In its earnings press release the company said: “This result was achieved despite an unusually ferocious hurricane season which hurt earnings by approximately $55 million or $.26 per share.
"Our teams worked hard to achieve the Double-Double goals and now they have done it," said Richard Fain, RCL’s chairman and CEO. "Each of the brands performed excellently during the past year raising their guest satisfaction and employee engagement scores to new heights. This augurs well as we focus on our previously announced 20/20 Vision."
Gross yields for full year 2017 were up 5.7 percent, while net yields were up 6.4 percent.
Gross cruise costs per available passenger cruise days (APCD) increased 1.9 percent. APCD is the company’s measurement of capacity and represents double occupancy per cabin multiplied by the number of cruise days for the period which excludes canceled cruise days and drydock days.
"We started the year very well positioned to achieve our Double-Double goals, and 2017 ended up being exceptionally good, resulting in the company exceeding these goals," said Jason Liberty, RCL’s executive vice president and CFO. "Strong demand trends for cruising coupled with disciplined cost management helped deliver another record year for the company."
$80 Million Equity Bonus for Employees
RCL credited its employees for successfully achieving the “Double-Double” target to double earnings per share and improve ROIC (return on invested capital) by 10 percent.
In its press release, the company said: “This success has been possible due to the passion and commitment of our people and the company has decided to give them a surprise bonus for their Double-Double efforts."
Today, the company announced that it will give an $80 million bonus – equal to 5 percent of all employees' annual salaries -- to every one of its 66,000 employees, with the exception of corporate officers.
This “thank you” bonus will be in the form of equity grants that will be vested over three years. RCL said this will give every employee a stake in the company's future success, plus the company will undertake major upgrades to crew facilities and recreation areas.
"Our people are what make our business," Fain emphasized. "We wanted to show our appreciation in a tangible way and we wanted it to reach every employee regardless of level in the organization. It was our way of saying thanks a million; in fact, thanks 80 million."
Fourth Quarter 2017 Results
US GAAP and adjusted net income for the fourth quarter were both $288 million or $1.34 per share. That compares with last year’s fourth quarter GAAP results of $261.1 million or $1.21 per share, and adjusted net quarterly income of $264.7 million, or $1.23 per share.
Gross fourth quarter yields were up 4.1 percent with net quarterly yields up 3.9 percent. The company said that “strong close-in demand for our core products combined with better than expected onboard spend drove the outperformance.”
Gross cruise costs per APCD increased 5.6 percent, while net cruise costs were up 8.7 percent.
Full Year 2018 Outlook
For full year 2018, RCL said its adjusted earnings are expected to be in the range of $8.55 to $8.75 per share.
Net yields are expected to increase 1.5 percent to 3.5 percent. "Our yields are increasing on top of an exceptional 6.4 percent net yield growth experienced in 2017," said Liberty, who called that development “quite extraordinary and a testament to the strength in the demand for cruising and our brands."
RCL also indicated that its “booked position for 2018” is better than last year's record high and at higher rates.
“North American and European consumers continue to drive strong demand for all of our main products,” the line’s press release said. “These trends, coupled with strong onboard spend and a positive outlook for our Asia Pacific products, are positioning the company for a ninth consecutive year of yield growth.”
In 2018, the company will welcome several new ships, which it cited as contributors to 2018 yield growth. These include Royal Caribbean International’s Symphony of the Seas and the updated Azamara Pursuit (the former P&O Adonia) in Europe, in April and August respectively, as well as Celebrity Edge in Fort Lauderdale in November. RCL cited the new ships as important contributors to 2018 yield growth.
For the first quarter 2018, net yields are expected to be up, but quarterly costs are “expected to be higher" driven by more drydock days, fewer available passenger cruise days and the lapping of hardware changes, the company said.
Liquidity and Capital Expenditures
As of December 31, 2017, the cruise company's liquidity was $2.2 billion, including cash and the undrawn portion of the company's unsecured revolving credit facilities.
Based upon current ship orders, projected capital expenditures for full year 2018, 2019, 2020, 2021 and 2022 are $3.4 billion, $2.1 billion, $2.5 billion, $2.5 billion and $2.9 billion, respectively.
Capacity changes for 2018, 2019, 2020, 2021 and 2022 are expected to be 3.9 percent, 6.9 percent, 4 percent, 7.7 percent and 8 percent, respectively, excluding any potential ship sales or unannounced additions.