Royal Caribbean Reports Improved Second Quarter Earnings and 2010 Outlook

MIAMI, July 22 /PRNewswire-FirstCall/ -- Royal Caribbean Cruises Ltd. (NYSE, OSE: RCL) today announced improved earnings for the second quarter of 2010 and provided higher guidance for the third quarter and full year 2010.

Key Highlights

• Second quarter 2010 net income increased to $60.5 million, or $0.28 per share;
• Business conditions have remained on target in each of the company's main markets while improved cost control has enabled the company to raise its earnings guidance for the year;
• Operating costs were lower than expected due mainly to strong cost control, energy conservation measures, expense timing and currency fluctuations;
• Second quarter Net Yields increased 4.9%, (5.4% on a Constant Currency basis);
• Second quarter Net Cruise Costs per APCD, "NCC", declined 2.8%, (2.0% on a Constant Currency basis);
• Net Yields are expected to increase approximately 4% in the third quarter and 3% - 4% for the year as a whole, (7% and 4% - 5% respectively on a Constant Currency basis);
• NCC are expected to be down 1% for the third quarter and down approximately 1% - 2% for the full year;
• EPS expectation for the full year 2010 has been increased by $0.10 to $2.25 to $2.35.  Third quarter 2010 EPS is expected to be in the range of $1.52 to $1.57.

"What a difference a year makes.  It is gratifying to post another solid quarter with improvement in yields and strong cost control," said Richard D. Fain, chairman and chief executive officer.  Fain continued, "Despite ongoing uncertainty with the economy, our profitability continues to improve and our booking environment continues to be remarkably stable.  We remain focused on strengthening our financial position and I am encouraged about the tremendous global response to our brands."

Second Quarter 2010 Results

Royal Caribbean Cruises Ltd. today announced net income for the second quarter 2010 of $60.5 million, or $0.28 per share, compared to a net loss of $35.1 million, or ($0.16) per share, in second quarter of 2009.  

Revenues improved to $1.6 billion in the second quarter of 2010 compared to $1.3 billion in the second quarter of 2009, as a result of capacity increases and yield improvements.  Net Yields for the second quarter of 2010 increased 4.9% despite the impact of the stronger US Dollar.  

In the second quarter of 2010, NCC decreased 2.8%, and NCC excluding fuel decreased 4.4%.  Excluding currency impacts, the comparable figures would have been decreases of 2.0% and 3.4%, respectively.      

Improved fuel consumption efforts resulted in significantly better fuel consumption of 318,000 metric tons during the second quarter.  At-the-pump pricing (including the benefit of the company's hedging) was virtually unchanged.  Altogether, the quarter's fuel expenditures were approximately $6 million better than previous calculations.

Forward Guidance

The company reported that with the exception of currency exchange rates, the current revenue environment has remained stable.  Additionally, booked load factors and average per diems continue to run ahead of same time last year for the back half of the year.  Third quarter 2010 Net Yields are expected to improve approximately 7% on a Constant Currency basis, or 4% on an as-reported basis.  Full Year 2010 Net Yields are expected to improve approximately 4% - 5% on a Constant Currency basis and 3% - 4% on an as-reported basis.

NCC are forecasted to be down 1% for the third quarter and down 1% - 2% for the full year of 2010.  On a Constant Currency basis, NCC are forecasted to be flat to up slightly for the third quarter and down 1% for the full year of 2010.

"Demand for our cruises remains on track with our earlier projections," said Brian J. Rice, executive vice president and chief financial officer. Rice continued, "The strengthening of the US Dollar will clearly result in a reduction of our reported yields, but also provides a corresponding reduction in expenses.  Most importantly, our continued focus on cost controls and efficiency is driving improved earnings."

Currency Exposure

Given the recent volatility in currency exchange rates, the company is expanding its disclosures regarding currency and has defined a non-GAAP measure of "Constant Currency."

Based on current estimates for 2010, the company anticipates that 30% of its net revenues, and 20% of its NCC excluding fuel will be denominated in currencies other than US Dollar, with the British Pound and the Euro being the most significant components.  

Fuel Expense

The company does not forecast fuel prices and its cost calculations are based on current at-the-pump prices net of hedging impacts. Based on today's fuel prices the company has included $170 million and $652 million of fuel expense in its third quarter 2010 and full year 2010 guidance, respectively.

The company has made additional progress over the past quarter in optimizing the fuel consumption on many of its newer itineraries, as well as fine tuning the operations on its newest hardware.  The ongoing focus on fuel consumption has allowed the company to further reduce its full year 2010 consumption estimate to 1,327,000 metric tons of fuel versus the estimates the company provided in April.

The company's fuel consumption is currently 47% hedged for the third quarter of 2010.  In keeping with its previously disclosed hedging strategy, forecasted consumption is now 48% hedged for the remainder of 2010, 55% hedged in 2011, 50% hedged in 2012 and 20% hedged in 2013.

Liquidity and Financing Arrangements

As of June 30, 2010, in addition to committed unsecured financing on its three remaining newbuilds, liquidity was $1.0 billion, including cash and the undrawn portion of the company's unsecured revolving credit facility.

Capital Expenditures and Capacity Guidance

Based on current ship orders, projected capital expenditures for 2010, 2011 and 2012 are $2.2 billion, $1.0 billion, and $1.0 billion, respectively.  

Capacity increases for the same three years are 11.5%, 7.1% and 2.0%, respectively.  These capacity estimates reflect the recently announced February 2011 sale of the Celebrity Mercury.  

Conference Call Scheduled

The company has scheduled a conference call at 10 a.m. Eastern Daylight Time today to discuss its earnings.  This call can be heard, either live or on a delayed basis, on the company's investor relations web site at www.rclinvestor.com.

Terminology

Available Passenger Cruise Days ("APCD")

APCDs are our measurement of capacity and represent double occupancy per cabin multiplied by the number of cruise days for the period.

Constant Currency

We believe Net Yields and Net Cruise Costs are our most relevant non-GAAP financial measures.  However, a significant portion of our revenue and expenses are denominated in currencies other than the United States dollar. Because our reporting currency is the United States dollar, the value of these revenues and expenses can be affected by changes in currency exchange rates.  Although such changes in local currency prices is just one of many elements impacting our revenues and expenses, it can be an important element.  For this reason, we also monitor Net Yields and Net Cruise Costs  “as if” the current periods' currency exchange rates had remained constant with the comparable prior periods' rates, or on a “Constant Currency” basis.

It should be emphasized that the use of Constant Currency is primarily used for comparing short-term changes and/or projections.  Over the longer term, changes in guest sourcing and shifting the amount of purchases between currencies significantly change the impact of the purely currency based fluctuations.

Gross Cruise Costs

Gross Cruise Costs represent the sum of total cruise operating expenses plus marketing, selling and administrative expenses.

Gross Yields

Gross Yields represent total revenues per APCD.

Net Cruise Costs

Net Cruise Costs represent Gross Cruise Costs excluding commissions, transportation and other expenses and onboard and other expenses.  In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Costs to be the most relevant indicator of our performance.  We have not provided a quantitative reconciliation of projected Gross Cruise Costs to projected Net Cruise Costs due to the significant uncertainty in projecting the costs deducted to arrive at this measure.  Accordingly, we do not believe that reconciling information for such projected figures would be meaningful.

Net Debt-to-Capital

Net Debt-to-Capital is a ratio which represents total long-term debt, including current portion of long-term debt, less cash and cash equivalents ("Net Debt") divided by the sum of Net Debt and total shareholders' equity.  We believe Net Debt and Net Debt-to-Capital, along with total long-term debt and shareholders' equity are useful measures of our capital structure.  

Net Revenues

Net Revenues represent total revenues less commissions, transportation and other expenses and onboard and other expenses.

Net Yields

Net Yields represent Net Revenues per APCD.  We utilize Net Revenues and Net Yields to manage our business on a day-to-day basis as we believe that it is the most relevant measure of our pricing performance because it reflects the cruise revenues earned by us net of our most significant variable costs, which are commissions, transportation and other expenses and onboard and other expenses.  We have not provided a quantitative reconciliation of projected Gross Yields to projected Net Yields due to the significant uncertainty in projecting the costs deducted to arrive at this measure.  Accordingly, we do not believe that reconciling information for such projected figures would be meaningful.

Occupancy

Occupancy, in accordance with cruise vacation industry practice, is calculated by dividing Passenger Cruise Days by APCD.  A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

Passenger Cruise Days

Passenger Cruise Days represent the number of passengers carried for the period multiplied by the number of days of their respective cruises.

Royal Caribbean Cruises Ltd. is a global cruise vacation company that operates Royal Caribbean International, Celebrity Cruises, Pullmantur, Azamara Club Cruises, CDF Croisieres de France, and TUI Cruises through a 50% joint venture.  The company has a combined total of 39 ships in service and three under construction.  It also offers unique land-tour vacations in Alaska, Asia, Australia, Canada, Europe, Latin America and New Zealand.  Additional information can be found on www.royalcaribbean.com, www.celebrity.com. www.pullmantur.com, www.azamaraclubcruises.com, www.cdfcroisieresdefrance.com, www.tuicruises.com or www.rclinvestor.com.

Certain statements in this release constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995.  Words such as “anticipate," “believe," “could," “estimate," “expect," “goal," “intend," “may," “plan," “project," “seek," “should," “will," and similar expressions are intended to identify these forward-looking statements.  Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements.  Examples of these risks, uncertainties and other factors include, but are not limited to the following: the impact of the economic environment on the demand for cruises, the impact of the economic environment on our ability to generate cash flows from operations or obtain new borrowings from the credit or capital markets in amounts sufficient to satisfy our capital expenditures, debt repayments and other financing needs, the impact of disruptions in the global financial markets on the ability of our counterparties and others to perform their obligations to us including those associated with our loan agreements and derivative contracts, the uncertainties of conducting business internationally and expanding into new markets, changes in operating and financing costs, including changes in foreign exchange rates, interest rates, fuel, food, payroll, airfare for our shipboard personnel, insurance and security costs, vacation industry competition and changes in industry capacity and overcapacity, the cost of or changes in tax, environmental, health, safety, security and other laws and regulations affecting our business or our principal shareholders, pending or threatened litigation, enforcement actions, fines or penalties, emergency ship repairs, including the related lost revenue, the impact of ship delivery delays, ship cancellations or ship construction price increases brought about by construction faults, mechanical problems or financial difficulties encountered by shipyards or their subcontractors, negative incidents or adverse publicity concerning the cruise vacation industry including those involving unusual weather patterns or natural disasters and the health, safety and security of passengers, the international political climate, fears of terrorist and pirate attacks, armed conflict, the unavailability or cost of air service and the resulting concerns over safety and security aspects of traveling, the spread of contagious diseases, a disruption to our business related to actual or threatened natural disasters, information systems failure or similar events, our ability to differentiate our cruise brands, changes or disruptions to the travel agency industry, the loss of key personnel, strained employee relations and/or our inability to retain or recruit qualified personnel, changes in our stock price or principal shareholders, uncertainties of a foreign legal system as we are not incorporated in the United States, the unavailability of ports of call, weather, and other factors described in further detail in Royal Caribbean Cruises Ltd.’s filings with the Securities and Exchange Commission. The above examples are not exhaustive and new risks emerge from time to time.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In addition, certain financial measures in this release constitute non-GAAP financial measures as defined by Regulation G.  A reconciliation of these items can be found on our investor relations website at www.rclinvestor.com.

SOURCE Royal Caribbean Cruises Ltd.

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