Royal Caribbean Cruises Ltd. (RCCL), the world's second largest cruise shipping group, has reported a sharp increase in both final quarter and full year 2014 net profit.
Group net profit rose to $109.7 million in the fourth quarter of last year from $7.0 million a year earlier. Revenues decreased a fraction, to $1.82 billion from $1.85 billion. For the full year, the group net profit increased to $764.1 million from $473.9 million in 2013 as revenues rose to $8.07 billion from $7.59 billion.
In the final quarter, Net Yields on a Constant-Currency basis increased 2.7% versus guidance of 3.5%, driven by a weaker than anticipated Caribbean pricing environment.
"The strengthening of the US Dollar, net of fuel, reduced EPS by $0.07. Even though the worldwide price of crude oil dropped precipitously during the quarter, there is a lag between sharp movements in crude prices and the cost of fuel at-the-pump and bunker inventory on board our ships. Bunker pricing net of hedging for the fourth quarter was $660 per metric ton and consumption was 347,000 metric tons," RCCL said in a statement.
During the fourth quarter, tax reform in Spain eliminated limitations on the carry forward period for previously recognized net operating losses. This resulted in a net income benefit of $33.5 million, or $0.15 per share. This benefit had not been anticipated in the company’s guidance and, in accordance with the company’s past approach to such items, was excluded from Adjusted EPS.
Net Yields for the full year 2014 increased 2.4% on a Constant-Currency basis. Onboard revenue yields were up 3.8%.
Net cruise costs (NCC) excluding fuel were down 0.6% on a Constant-Currency basis, versus guidance of flat to slightly down. The average bunker price net of hedging for full year 2014 was $693 per metric ton and consumption was 1,367,000 metric tons.
Towards the end of 2014, the US Dollar strengthened while the price of fuel in world markets declined, but at a more dramatic rate. While the impact of currency is immediate, there is a lag before a change in the price of fuel flows through to the business. There continues to be a relationship between foreign exchange and fuel, but the offsets are not exact (especially in the short term) and fluctuations a near certainty. For 2014, the net impact of currency and fuel was a negative $0.07 to earnings relative to the latest guidance.
At the beginning of 2014, the company forecasted Adjusted Earnings of $3.20 to $3.40 per share. In the first and second quarter, foreign exchange moved in the company’s favor and the company increased the midpoint of its guidance to $3.45, largely to reflect that improvement. Later in the year, foreign exchange reversed direction, reversing the earlier benefit. The company’s final Adjusted EPS of $3.39 was at the top end of original guidance. Interestingly, foreign exchange movements netted to approximately zero by year-end.
