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    Royal Caribbean Cruises Ltd (RCL)

    New Share Buyback Program

    Business Description

    Royal Caribbean Cruises Ltd. (RCL) is a leading global cruise company that owns and operates three main cruise brands: Royal Caribbean International, Celebrity Cruises, and Silversea Cruises, collectively referred to as their "Global Brands" . Additionally, RCL holds a 50% joint venture interest in TUI Cruises GmbH, which operates the German brands TUI Cruises and Hapag-Lloyd Cruises, known as their "Partner Brands" . The company generates revenue primarily from passenger ticket sales and onboard services, offering itineraries to over 1,000 destinations across all seven continents .

    1. Passenger Ticket Revenues - Generates income from the sale of cruise tickets and air transportation to and from the ships.
    2. Onboard and Other Revenues - Includes sales of goods and services not included in ticket prices, such as casino operations, vacation protection insurance, and fees for operating certain port facilities.
    3. Global Brands - Operates the cruise brands Royal Caribbean International, Celebrity Cruises, and Silversea Cruises, providing diverse itineraries and innovative ships.
    4. Partner Brands - Involves a 50% joint venture interest in TUI Cruises GmbH, operating the German brands TUI Cruises and Hapag-Lloyd Cruises.

    Q3 2024 Summary

    Initial Price$159.75July 1, 2024
    Final Price$173.23October 1, 2024
    Price Change$13.48
    % Change+8.44%

    What went well

    • RCL expects double-digit yield growth in Western Caribbean itineraries with the introduction of "Perfect Day Mexico", similar to the impact seen with "Perfect Day at CocoCay".
    • The company has reached a key financial milestone, returning to a fully unsecured capital structure and generating over $3.3 billion in cash flow this year, enabling capital returns to shareholders through dividends and potential share repurchases.
    • Net yields are up about 25% versus 2019 levels with no signs of hitting a ceiling in demand or pricing, supporting ongoing margin expansion and higher returns on investments.

    What went wrong

    • Significant Capital Expenditures May Strain Financial Resources: The company acquired the port for Perfect Day Mexico at a cost of $292 million, with additional development costs forthcoming, which could pressure capital resources.
    • Lack of Priority on Debt Reduction Could Raise Leverage Concerns: Management indicated there is no priority on bringing debt down further outside of refinancing, which may raise concerns about the company's leverage profile.
    • Potential Cost Pressures from Ongoing Investments: Continued investments in new projects could lead to cost pressures and introduce "noise" in financial numbers, potentially impacting margins.

    Q&A Summary

    1. Earnings Guidance for 2025
      Q: What are the pillars to achieve $14+ earnings in 2025?
      A: Jason Liberty stated that to reach the $14 handle in 2025, they need moderate yield growth, continued effective cost management, and will benefit from lower interest costs due to balance sheet improvements. This guidance does not include additional share buybacks.

    2. Yield Uplift from Perfect Day Mexico
      Q: Can we expect a double-digit yield uplift from Perfect Day Mexico?
      A: Jason Liberty confirmed they anticipate a double-digit yield opportunity in the Western Caribbean with Perfect Day Mexico, similar to the uplift seen with CocoCay. They plan to leverage learnings from CocoCay to drive strong demand and enhance yields.

    3. Capital Allocation and Cash Flow
      Q: Will cash flow be used for shareholders or balance sheet?
      A: Naftali Holtz emphasized the importance of maintaining a strong balance sheet and continuing to find ways to lower the cost of capital. While higher-cost debt is gone, they have reinitiated a dividend and may consider share buybacks opportunistically, aiming for a competitive dividend and potential capital returns to shareholders.

    4. Elevated Demand and Bookings Trends
      Q: How are current demand patterns and bookings for 2025?
      A: Jason Liberty noted that demand continues to rise each month, with elevated bookings and the ability to increase pricing. Despite hurricanes, they have seen strong demand in September and October, building a solid book position into next year. They are optimizing revenue for 2025 and beyond, focusing on yield growth and margin returns.

    5. Investments and Return Profile
      Q: Why is your return profile better than ever before?
      A: Jason Liberty explained that thoughtful investments over time, focusing on leading segments, enhancing experiences, and monetizing destinations have improved margins and returns. Leveraging technology and sophisticated yield management contributes to increased margins and a stronger return profile, with room for further improvement.

    6. Cost Control and Timing
      Q: Can you share details on favorable cost timing and discipline?
      A: Naftali Holtz mentioned that this year had a unique situation with double the number of dry docks compared to last year. Cost timing issues are related to supply chain impacts from suppliers. They are managing costs strongly, focusing on enhancing margins while making the right investments for the future.

    7. Moderate Yield Growth Guidance
      Q: Does moderate yield growth include upside from new ships and destinations?
      A: Jason Liberty stated that moderate yield growth factors in like-for-like growth and contributions from new hardware, typically adding about one point per year to yields. Introductions of private destinations move yields to the higher end of the range, but their outlook is based on historical trends.

    8. Order Book and Capacity Growth
      Q: What is the status of your ship orders through 2028?
      A: Jason Liberty indicated that they have placed orders through 2027 and into 2028, with many options secured. They subscribe to moderate capacity growth, looking to moderately grow their fleet and brands, confident in achieving yield growth over time.

    9. Ongoing Cost Pressures from Investments
      Q: Should we expect ongoing cost pressures due to investments?
      A: Naftali Holtz said they manage costs holistically, factoring in investments. While investments may add some costs, they have incredible returns and will lead to margin expansion. They are committed to moderate capacity growth, moderate yield growth, and strong cost control.

    10. Texas Market Opportunity
      Q: How do you view the underpenetrated Texas cruise market?
      A: Michael Bayley highlighted that Perfect Day Mexico and Royal Beach Club Cozumel open opportunities to introduce more short products from Texas and Gulf ports. With new terminals and large ships, they offer extraordinary short breaks, tapping into a market with a similar propensity to cruise but half the penetration of other markets.

    11. Impact of Private Destinations on Margins
      Q: Will Paradise Island have similar ancillary uplift as CocoCay?
      A: Michael Bayley explained that the Royal Beach Club on Paradise Island will be an exclusive, all-for-pay experience, accommodating about 4,000 guests per day. Unlike CocoCay, it requires purchasing a ticket, making it a positive revenue generator with good margins.

    12. Impact of Hurricanes and Elections
      Q: Do hurricanes and elections affect bookings and yields?
      A: Jason Liberty noted hurricanes caused minimal impact, with no significant carry-through into 2025. Michael Bayley added that elections may cause slight volatility during election week, but over a longer period, there's effectively no impact on bookings, regardless of the outcome.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Jason T. LibertyPresident and Chief Executive OfficerJanuary 2022Jason T. Liberty has served as the President and CEO of RCL since January 2022. He joined the company in 2005 and has held several roles, including Executive Vice President and CFO from 2017 to 2022 .
    Naftali HoltzChief Financial OfficerJanuary 2022Naftali Holtz has been the CFO of RCL since January 2022. He joined the company in 2019 after working at Goldman Sachs and is responsible for overseeing financial planning, risk management, and more .
    Michael W. BayleyPresident and CEO, Royal Caribbean InternationalDecember 2014Michael W. Bayley has been President and CEO of Royal Caribbean International since December 2014. He has been with Royal Caribbean for over 40 years, starting as an Assistant Purser .
    Laura Hodges BethgePresident, Celebrity CruisesMay 2023Laura Hodges Bethge has served as President of Celebrity Cruises since May 2023. She joined Royal Caribbean in 2000 and has held various leadership roles, including Executive Vice President of Shared Services Operations .
    Harri U. KulovaaraExecutive Vice President, MaritimeJanuary 2005Harri U. Kulovaara has been Executive Vice President, Maritime since January 2005. He is responsible for fleet design and newbuild operations and has been with Royal Caribbean since 1995 .
    R. Alexander LakeChief Legal Officer and SecretaryJune 2021R. Alexander Lake has served as Chief Legal Officer and Secretary since June 2021. Before joining Royal Caribbean, he spent over 17 years at World Fuel Services Corporation .

    Questions to Ask Management

    1. As you expand your private destinations with projects like Perfect Day Mexico and the World Beach Clubs, how are you mitigating the risks associated with significant capital investments if consumer demand shifts or economic conditions change?
    2. Given your expectation for earnings in 2025 to start with a $14 handle, in the context of potential macroeconomic headwinds, how resilient is your projected earnings growth to a possible slowdown in consumer spending on leisure travel?
    3. With net yields up 25% compared to 2019 levels and significant yield growth over the last two years, to what extent do you believe this rate of yield growth is sustainable, and how might continued price increases impact demand and occupancy levels?
    4. Considering your plans for moderate capacity growth through new ship orders and fleet expansion, how are you assessing the potential risk of overcapacity in the cruise industry, and what contingency plans are in place if demand does not meet expectations?
    5. You've made progress in deleveraging and have returned to an unsecured capital structure, yet you're also increasing investments in new ships and private destinations; how do you balance the need for capital investment with shareholder returns, and how might your capital allocation strategy change if economic conditions deteriorate?

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024

    Guidance:

    1. Full Year 2024 (FY 2024):

      • Net Yield Growth: Up 10.8% to 11.3% .
      • Net Cruise Costs (excluding fuel): Up 6.2% to 6.7% .
      • Fuel Expense: $1.16 billion, 61% hedged .
      • Adjusted EPS: $11.57 to $11.60 .

    2. Fourth Quarter 2024 (Q4 2024):

      • Net Yields: Up 5.1% to 5.6% .
      • Net Cruise Costs (excluding fuel): Up 11.6% to 12.1% .
      • Adjusted EPS: $1.40 to $1.45 .

    3. 2025 Outlook:

      • Capacity Growth: Up 5% .
      • Adjusted EPS for 2025: Expected to start with a $14 handle .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024

    Guidance:

    1. Full Year 2024 (FY 2024):

      • Adjusted EPS: $11.35 to $11.45 .
      • Net Yields: Up 10.4% to 10.9% .
      • Net Cruise Costs Excluding Fuel: Up approximately 6% .
      • Fuel Expense: $1.17 billion, 61% hedged .

    2. Third Quarter 2024 (Q3 2024):

      • Adjusted EPS: $4.90 to $5.00 .
      • Net Yields: Up 6.5% to 7% .
      • Net Cruise Costs Excluding Fuel: Up 4.7% to 5.2% .
      • APCDs: 13.4 million .

    3. Fourth Quarter 2024 (Q4 2024):

      • Yield Growth: Mid-single-digit growth .

    4. Leverage: Below 3.5x .

    5. Dividend: $0.40 per share .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024

    Guidance:

    1. Full Year 2024 (FY 2024):

      • Net Cruise Costs (excluding fuel): Up approximately 5.5% .
      • Fuel Expense: $1.18 billion, 61% hedged .
      • Adjusted EPS: $10.70 to $10.90 .
      • Net Yields: Up 9% to 10% .

    2. Second Quarter 2024 (Q2 2024):

      • APCDs: 12.2 million .
      • Net Yields: Up 10.2% to 10.7% .
      • Net Cruise Costs (excluding fuel): Up 7.4% to 7.9% .
      • Adjusted EPS: $2.65 to $2.75 .

    3. Balance Sheet and Financial Strategy:

      • Liquidity: $3.7 billion .
      • Leverage: Below mid-3x .
      • Credit Rating: S&P BB+, Moody's Ba2 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024 and Q1 2024

    Guidance:

    1. Full Year 2024 (FY 2024):

      • Net Yields: Up 5.25% to 7.25% .
      • Net Cruise Costs, Excluding Fuel: Up 3.75% to 4.25% .
      • Fuel Expense: $1.16 billion, 61% hedged .
      • Adjusted EPS: $9.50 to $9.70 .
      • Capacity Growth: Up 8.5% .

    2. First Quarter 2024 (Q1 2024):

      • Net Yields: Up approximately 15% .
      • Net Cruise Costs, Excluding Fuel: Up 7.1% to 7.6% .
      • Adjusted EPS: $1.10 to $1.20 .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Carnival Corporation & plc (owns Aida Cruises, Carnival Cruise Line, Costa Cruises, Cunard Line, Holland America Line, P&O Cruises, Princess Cruises, and Seabourn)
    • Disney Cruise Line
    • MSC Cruises
    • Norwegian Cruise Line Holdings Ltd (owns Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises)
    • Virgin Voyages

    Latest news

    Recent developments and announcements about RCL.

    Financial Actions

      New Share Buyback Program

      ·
      Sep 26, 2024, 12:00 AM

      Royal Caribbean Cruises Ltd. has announced a new buyback program involving the completion of a $1.5 billion private offering of 5.625% Senior Notes due 2031. The company plans to use the proceeds to redeem and/or repay certain indebtedness, including the $700 million 7.250% Senior Notes due 2030 and the $232 million Silver Dawn finance lease. The Notes will mature on September 30, 2031, with interest payable semi-annually starting March 31, 2025 .