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RCL Q4 profit in line but Q1 is lower, 2020 guidance excludes coronavirus

Royal Caribbean Cruises Ltd. turned in an adjusted fourth quarter profit of $1.42 per share, square on Wall Street’s expectation but lower than the $1.50/share a year ago due to Cuba and Hurricane Dorian.

In providing its first earnings guidance for 2020 — a range of  $10.40 to $10.70 per share — the company excluded impact related to coronavirus given the ‘fluidity of the circumstances.’

Bushfires, Hong Kong, Middle East impact Q1

Royal Caribbean reported ‘very strong’ demand but said Australia’s unprecedented bushfires and unrest in Hong Kong and the Middle East are having a negative impact in the first quarter. The discontinuation of Cuba sailings — a revenue headwind of approximately 120 basis points — and a tough year-over-year comparable as the company laps the inaugural seasons of two new ships during Q1 2019 also have an effect.

As a result, Q1 adjusted EPS is forecast in the range of 80 cents to 85 cents per share. This is lower than Wall Street’s $1.14 expectation and the $1.31 a year ago.

Record 2019 earnings

Adjusted net income for the full year was $2bn, or $9.54 per share, versus US GAAP net income of $1.8bn, or $8.95. This compares to 2018’s adjusted net income of $1.9bn, or $8.86 per share, and US GAAP net income of $1.8bn, or $8.56/share. This result was achieved despite a series of extraordinary events including the drydock crane collapse in Grand Bahama shipyard, the cancellation of the cruises to Cuba and an unusual hurricane season.

Total revenue was $10.95bn, up from $9.49bn.

Net yields were up 8% in constant currency and up 6.7% as reported. Net cruise costs per available lower berth day excluding fuel were up 11.4% in constant currency and 10.8% as reported.

For the quarter, adjusted net income was $297.4m ($1.42/share) while US GAAP net income was $273.1m, or $1.30/share. Net yields were up 6.8% in constant currency, within guidance. Net cruise costs per available lower berth day excluding fuel were up 15.9% in constant currency, higher than expected due to marine costs and employee-related expenses.

Q4 revenues were $2.52bn, up from $2.33bn in Q1 2018.

Strong start to wave

‘Wave season has started on a very robust basis with strong demand especially in the US and European markets,’ Royal Caribbean said. Overall rates are higher than the same time last year and booked load factors are ahead of same time last year on a like-for-like basis. 

Coronavirus, though, will impact results. ‘While we expect this to be temporary, the situation is highly fluid and the overall impact cannot reasonably be estimated at this time. Accordingly, our guidance does not include any provision for the impact of the outbreak. We will update our guidance as the situation stabilizes and we can reasonably estimate its impact,’ the company said.

Coronavirus cancellations through early March

Royal Caribbean has canceled eight cruises from China ending March 4 and also modified certain itineraries in the region which overall have an estimated impact of 25 cents per share.

The company expects that an erosion of consumer confidence in China could have an additional impact on load factor and rate until the market normalizes. If these travel restrictions and concerns over the outbreak continue for an extended period of time, they could have a material impact.

Recent geopolitical events such as the bushfires in Australia and unrest in the Middle East have also impacted demand for certain itineraries, but Royal Caribbean said the strength of the core products has more than compensated.

For the full year, net yields are expected to increase 2.25% to 4.25% in constant currency and 2.5% to 4.5% as reported.

‘Our yield outlook for 2020 is very encouraging with higher pricing on top of an exceptional 2019 performance,’ EVP and CFO Jason Liberty said. ‘It’s clear that the coronavirus will impact revenue in China in the short term, but we are a long-term business and our plans to continue growing this profitable market remain unchanged.’

New 20>25 by 2025 program

In addition, Royal Caribbean introduced its 20>25 by 2025 program, designed to give employees specific goals to work toward. Several goals by 2025 are included: delivering $20 adjusted EPS, further reducing the company's carbon footprint by 25%, delivering strong returns on invested capital and continuing to improve on record guest satisfaction and employee engagement metrics.

Royal Caribbean put the goals in place to focus leadership on ‘achieving outsized improvements in our performance going forward,’ adding: ‘We believe that what gets measured gets better and — just like the Double-Double program — we believe that this 20>25 by 2025 program will help focus our people on the key success factors for our future.’

‘We are pairing ambitious business and environmental goals because we all understand that businesses must do our part to meet the needs of all our stakeholders,’ Chairman and CEO Richard Fain said. ‘Over the last years, our people have worked hard to deliver strong performance on both profitability metrics and important societal goals.  This 20>25 by 2025 program should help take those efforts to the next level.’

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