Royal Caribbean eyes record 2024 Earnings after strong 2023 results

Monday, February 5, 2024

Royal Caribbean Group (NYSE: RCL) announced today its 2023 earnings, with an Earnings per Share (EPS) of $6.31 and an Adjusted EPS of $6.77, surpassing the company’s own forecasts thanks to increased demand towards the quarter’s end. This positive trend is expected to extend into 2024, with the company forecasting an Adjusted EPS between $9.50 and $9.70.

“2023 was an exceptional year, propelled by unmatched demand for our brands from new and loyal guests,” said Jason Liberty, president and CEO, Royal Caribbean Group. “With the wind in our sails and record-breaking bookings, 2024 is poised to be another robust year, and we expect to achieve two of our Trifecta goals one year early,” added Liberty. “With our industry-leading global brands combined with the most innovative fleet and destinations, we remain intensely focused on delivering a lifetime of vacations and priceless memories for our guests while delivering exceptional long-term shareholder value.”
2023 Full-Year Financial Summary:

• The company experienced a 2% increase in Gross Margin Yields and a 13.5% rise in Net Yields on a Constant Currency basis (13.2% reported), relative to 2019 figures.
• Gross Cruise Costs per Available Passenger Cruise Day (APCD) saw a 9% uptick as reported, while Net Cruise Costs (NCC), excluding fuel, per APCD rose by 7.9% in Constant Currency (7.5% reported). These comparisons are against 2019 numbers and account for an approximate 65 basis points (bps) increase, exceeding earlier forecasts, primarily due to heightened stock compensation expenses following a significant stock price increase.
• The company’s total revenue reached $13.9 billion, with a Net Income of $1.7 billion or $6.31 per share. Adjusted Net Income stood at $1.8 billion or $6.77 per share, alongside an Adjusted EBITDA of $4.5 billion.

2024 Outlook:

• The WAVE season has begun on a record-breaking note, with both booked load factors and rates surpassing previous records.
• Net Yields are projected to rise by 5.25% to 7.25% in Constant Currency (5.30% to 7.30% reported) compared to 2023.
• NCC, excluding fuel, per APCD is expected to increase by 3.75% to 4.25% in Constant Currency (3.80% to 4.30% reported) against 2023, factoring in 315 bps for costs related to additional drydock days and the new operations at Hideaway Beach in Perfect Day at CocoCay.
• Adjusted EPS is forecasted to see a 40% year-over-year growth, ranging between $9.50 and $9.70.
• The company anticipates meeting two of its Trifecta goals in 2024: achieving triple-digit EBITDA per APCD and a Return on Invested Capital (ROIC) in the teens, surpassing previous expectations by a year.

Q4 2023 Financial Highlights:

• Q4 Net Income was $0.3 billion or $1.06 per share, a significant improvement from a Net Loss of $(0.5) billion or $(1.96) per share in the corresponding quarter of the prior year. Adjusted Net Income for Q4 stood at $0.3 billion or $1.25 per share, compared to an Adjusted Net Loss of $(0.3) billion or $(1.12) per share year-over-year. The quarter also saw $3.3 billion in total revenues and an Adjusted EBITDA of $1.0 billion.
• Gross Margin Yields and Net Yields increased by 30.9% and 17.9% in Constant Currency (17.3% reported), respectively, against Q4 2019. The load factor for the quarter reached 105%.
• Gross Cruise Costs per APCD rose by 9.7% as reported, compared to 2019. NCC, excluding Fuel, per APCD increased by 6.7% in Constant Currency (6.2% reported), including an approximate 250 bps rise due to an increase in stock compensation expense, exceeding earlier projections.

Booking Update:

• The company is optimistic about the demand and pricing outlook for 2024, with record bookings in terms of rate and volume following the five most successful booking weeks in the company’s history since the last earnings call. This strength is evident across all key itineraries.
• Consumer spending onboard and through pre-cruise purchases continues to outpace previous years, driven by higher participation rates and prices, signaling robust and quality demand ahead.
• The introduction of new ships, particularly the Icon of the Seas, the current fleet’s performance, and the expansion of Perfect Day at CocoCay with Hideaway Beach, are set to significantly contribute to the company’s yield and earnings growth in 2024.

“Demand for our brands continues to outpace broader travel as a result of consumer spend further shifting toward experiences and the exceptional value proposition of our products,” said Jason Liberty, president and CEO, Royal Caribbean Group. “We have exciting new vacation experiences in 2024, including the game changing Icon of the Seas, and have entered the year in a record booked position at significantly higher prices, further positioning us for a strong 2024.”
As of December 31, 2023, the total balance of customer deposits held by the Group amounted to $5.3 billion.
For the first quarter of 2024, it is anticipated that Net Yields will rise by 15.2% to 15.7% in Constant Currency, and by 15.3% to 15.8% on an as-reported basis when compared to 2023. This increase is attributed to a combination of improved Load factors and the continuation of pricing strength that started during the 2023 WAVE period.

Net Cruise Costs (NCC), excluding Fuel, per Available Passenger Cruise Days (APCD), are forecasted to grow by 7.10% to 7.60% in Constant Currency, and by 7.20% to 7.70% on an as-reported basis relative to 2023. This includes an additional 380 basis points of costs owing to more drydock days and the operations at Hideaway Beach.

Considering the current status of fuel prices, interest rates, exchange rates, and the aforementioned factors, the company projects an Adjusted Earnings Per Share (EPS) for the first quarter to be between $1.10 and $1.20.

Fuel Expense Overview

For the fourth quarter, the net bunker pricing, after hedging, stood at $713 per metric ton with a fuel consumption of 421,000 metric tons.

The company does not predict future fuel prices. Its fuel expense projections are based on current market prices, factoring in hedging. For the first quarter, the guidance includes a fuel expense of approximately $307 million, with an anticipated consumption of 444,000 metric tons, 60% of which is secured through hedging swaps. The hedging coverage for fuel consumption stands at 61%, 44%, and 15% for the years 2024, 2025, and 2026 respectively, with the annual average hedging cost per metric ton estimated at $509, $468, and $490 for each of these years in turn.

2024 Guidance Summary

• Fuel Statistics for Q1 and Full Year 2024:
• Q1 Fuel Consumption: 444,000 metric tons; Full Year: 1,727,000 metric tons.
• Q1 Fuel Expenses: $307 million; Full Year: $1,165 million.
• Percentage of Fuel Hedged: 60% for Q1; 61% for the full year.

Guidance Details

• First Quarter 2024:
• Net Yields increase vs. 2023: 15.30% to 15.80% as-reported; 15.20% to 15.70% in Constant Currency.
• Net Cruise Costs per APCD vs. 2023: 4.60% to 5.10% for both as-reported and Constant Currency.
• Net Cruise Costs per APCD excluding Fuel vs. 2023: 7.20% to 7.70% as-reported; 7.10% to 7.60% in Constant Currency.
• Full Year 2024:
• Net Yields increase vs. 2023: 5.30% to 7.30% as-reported; 5.25% to 7.25% in Constant Currency.
• Net Cruise Costs per APCD vs. 2023: 2.0% to 2.50% for both as-reported and Constant Currency.
• Net Cruise Costs per APCD excluding Fuel vs. 2023: 3.80% to 4.30% as-reported; 3.75% to 4.25% in Constant Currency.

Additional Guidance and Sensitivity Analysis

• APCDs for Q1 and Full Year 2024, alongside capacity changes, depreciation, amortization, and net interest details.
• Adjusted EPS forecast for Q1 is between $1.10 and $1.20, with a full-year expectation of $9.50 to $9.70.
• Sensitivity analysis includes the impact of changes in currency, net yields, NCC excluding Fuel, SOFR rates, and fuel prices on the company’s financial outlook.

Liquidity and Financing

As of December 31, 2023, the company’s liquidity stood at $3.1 billion, encompassing both cash, cash equivalents, and available credit facilities. The final quarter saw the refinancing of $3.0 billion in credit facilities and a $500 million term loan into new, multi-year facilities totaling $3.5 billion. Additionally, $500 million in senior secured notes due in June 2025 was repaid, and 2.875% convertible notes were settled using $224.5 million in cash and the issuance of 146,500 shares.
“Our accelerated performance and commitment to strengthening the balance sheet allowed us to pay off approximately $4 billion of debt in 2023 and significantly reduce leverage consistent with our Trifecta goal of returning to investment grade metrics,” said Naftali Holtz, chief financial officer, Royal Caribbean Group. “We will continue to strategically allocate capital to invest in our future while also paying down debt, and will be close to investment grade metrics in 2024.”
As of December 31, 2023, the company’s anticipated debt repayments are set at $1.7 billion for 2024, $2.6 billion for 2025, $3.4 billion for 2026, and $3.8 billion for 2027. Notably, about 80% of the company’s debt carries fixed interest rates.

Capital Expenditures and Expansion Plans

The forecast for capital spending in 2024 is roughly $3.3 billion, influenced by current exchange rates and mainly allocated for the acquisition of new vessels. The company is poised to welcome the Utopia of the Seas and Silver Ray in 2024, with financing already secured for all pending ship acquisitions. Capital outlays not associated with new ships are projected at $0.6 billion.

The company anticipates an 8.5% increase in capacity for 2024 over the previous year, with subsequent years seeing changes of 5%, 6%, and 4% for 2025, 2026, and 2027, respectively. These projections do not account for any future ship sales or acquisitions that may be decided.

Investor Communications

A conference call is scheduled for 10 a.m. Eastern Time today. This session can be accessed live or on a replay basis on the company’s investor relations website at www.rclinvestor.com.

Operational and Financial Definitions

• Adjusted EBITDA is an alternative financial measure excluding certain significant items from EBITDA, providing a meaningful assessment of profitability.
• Adjusted Earnings (Loss) per Share (“Adjusted EPS”) offers a comparative measure of the company’s performance, excluding specific significant items.
• Adjusted Net Income (Loss) reflects the company’s performance, excluding certain items, providing a meaningful assessment of its financial health.
• Available Passenger Cruise Days (“APCD”) measures capacity, excluding canceled cruise days and unavailable cabins, useful for capacity and rate analyses.
• Constant Currency analysis helps understand revenue and expense fluctuations without the impact of foreign exchange rate movements.
• EBITDA is a measure of the company’s operating performance, excluding interest, taxes, depreciation, and amortization.
• Occupancy (“Load factor”) indicates the percentage of available capacity utilized, with figures over 100% showing more than two passengers in some cabins.
• Passenger Cruise Days calculates the total number of cruise days enjoyed by passengers.
• Gross Cruise Costs combine total cruise operating expenses with marketing, selling, and administrative expenses.
• Net Cruise Costs (“NCC”) and NCC excluding Fuel are measures of cruise operating performance, excluding specific costs, providing insight into cost control efficiency.
• Invested Capital and Adjusted Operating Income (Loss) are metrics used to evaluate the efficiency of capital use and operating performance, respectively.
• Return on Invested Capital (“ROIC”) measures how effectively the company generates operating income relative to the capital invested.
• Gross Margin Yield and Adjusted Gross Margin provide insights into the company’s pricing performance and the efficiency of its variable cost management.
• Adjusted EBITDA Margin offers a view of the company’s profitability in relation to its total revenues.

For more detailed information, refer to the “Adjusted Measures of Financial Performance” section.

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