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Royal Caribbean Group says demand for 2023 sailings has significantly exceeded expectations

Total revenues were a record $3.5 billion, Net Income was $458.8 million or $1.70 per share, Adjusted Net Income was $491.7 million or $1.82 per share, Adjusted EBITDA was a record $1.2 billion and Operating Cash Flow was $1.4 billion.

MIAMI – Royal Caribbean Group reported second quarter Earnings per Share of $1.70 and Adjusted Earnings per Share 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 onboard revenue. As a result of the accelerating demand environment for its vacation experiences, the company is increasing its 2023 Adjusted Earnings per Share guidance by 33% to $6.00 – $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, president and CEO, Royal Caribbean Group. “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.”

Key Highlights

Strong ticket pricing from both North America and Europe itineraries, combined with strength in onboard revenue, led to better-than-expected revenues in the second quarter and the significant increase in the company’s full year outlook for revenue and earnings.

Second Quarter 2023:

  • Gross Margin Yields increased 13.1% As-Reported, and Net Yields increased 12.9% in Constant-Currency (12.6% As-Reported), both compared to the second quarter of 2019.
  • Gross Cruise Costs per Available Passenger Cruise Day (“APCD”) increased 10.9% As-Reported, and Net Cruise Costs (“NCC”), excluding Fuel, per APCD increased 9.0% in Constant-Currency (8.6% As-Reported), both compared to the second quarter of 2019. Favorable timing of operating expenses was offset by the increase in stock compensation expense due to the rise in share price and expected financial performance.
  • Total revenues were a record $3.5 billion, Net Income was $458.8 million or $1.70 per share, Adjusted Net Income was $491.7 million or $1.82 per share, Adjusted EBITDA was a record $1.2 billion and Operating Cash Flow was $1.4 billion.

Full Year 2023 Outlook:

  • Net Yields are expected to increase 11.5% to 12.0% in Constant-Currency and As-Reported, compared to 2019.
  • NCC, excluding Fuel, per APCD is expected to be up approximately 7.0% in Constant-Currency (6.7% As-Reported), compared to 2019. The increase in costs, relative to previous guidance, is driven by an increase in stock compensation expense due to the rise in share price and expected financial performance.
  • Adjusted Earnings per Share for the full year are expected to be in the range of $6.00 to $6.20 per share.

Third Quarter 2023 Outlook:

  • Net Yields are expected to increase 13.5% to 14.0% in Constant-Currency (14.0% to 14.5% As-Reported), compared to the third quarter of 2019.
  • NCC, excluding Fuel, per APCD is expected to increase approximately 11.2% in Constant-Currency and As-Reported, compared to third quarter 2019. Approximately 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 Earnings per Share for the third quarter are expected to be in the range of $3.38 to $3.48 per share.
Second Quarter 2023

The company reported Net Income for the second quarter of $458.8 million or $1.70 per share compared to Net Loss of $(0.5) billion or $(2.05) per share for the same period in the prior year. The company also reported Adjusted Net Income of $491.7 million or $1.82 per share for the second quarter compared to Adjusted Net Loss of $(0.5) billion or $(2.08) per share for the same period in the prior year.

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. Load factor for the second quarter was 105%.

Gross Cruise Costs per APCD increased 10.9% As-Reported, compared to 2019. NCC, excluding Fuel, per APCD increased 8.6% As-Reported and 9.0% in Constant-Currency, compared to 2019. Favorable timing of operating expenses drove NCC lower, however it was offset entirely by an increase in stock compensation expense related costs due to the significant rise in share price and expected financial performance.

Update on Bookings

Booking volumes in the second quarter 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 who are booking European cruises this summer have accelerated.

The further increase in yield expectations for the year is the result of higher pricing and onboard revenue expectations for key itineraries, particularly in North America and Europe. Consumer spending onboard, 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 billion.

Fuel Expense

Bunker pricing net of hedging for the second quarter was $682 per metric ton and consumption was 405,000 metric tons.

The company does not forecast fuel prices and its fuel cost calculations are based on current at-the-pump prices, net of hedging impacts. Based on today’s fuel prices, the company has included $275 million of fuel expense in its third quarter guidance at a forecasted consumption of 408,000 metric tons, which is 55% hedged via swaps. Forecasted consumption is 54%, 60% and 40% hedged via swaps for the remainder of 2023, 2024 and 2025, respectively. The annual average cost per metric ton of the hedge portfolio is approximately $573, $509, and $496 for 2023, 2024, and 2025, respectively.

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