Royal Caribbean Cruises Ltd. (NYSE:RCL)

The period under review demonstrates a consistent pattern of negative economic profit, alongside fluctuations in the underlying components. Net operating profit after taxes (NOPAT) initially increased before experiencing substantial declines, while the cost of capital decreased over time. Invested capital generally increased, though a slight decrease is observed in the most recent year. These factors combined to produce consistently negative economic profit figures throughout the analyzed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited growth from 2017 to 2019, increasing from approximately US$1.9 billion to US$2.3 billion. However, a significant downturn occurred in 2020, with NOPAT falling to a loss of approximately US$4.9 billion. This negative trend continued into 2021, though the loss moderated slightly to approximately US$4.0 billion. The substantial declines in NOPAT from 2019 to 2020 and 2021 likely reflect external factors impacting operations.

Cost of Capital

The cost of capital demonstrated a consistent downward trend, decreasing from 30.19% in 2017 to 19.91% in 2021. This reduction suggests a decreasing risk profile or changes in the company’s capital structure and financing costs over the period. Despite this decline, the cost of capital remained substantial throughout the period.

Invested Capital

Invested capital generally increased from US$18.1 billion in 2017 to US$28.4 billion in 2020. A slight decrease was observed in 2021, with invested capital falling to US$26.3 billion. The increase in invested capital suggests expansion or investment in assets, while the 2021 decrease could indicate asset sales or a reduction in investment.

Economic Profit

Economic profit remained negative throughout the entire period. The magnitude of the negative economic profit increased from approximately US$3.6 billion in 2017 to a peak of approximately US$11.2 billion in 2020. While the negative economic profit decreased to approximately US$9.2 billion in 2021, it remained significantly negative. This indicates that the company’s returns on invested capital were consistently below its cost of capital.

The combination of declining NOPAT and a consistently high cost of capital, despite the cost of capital’s downward trend, resulted in substantial and persistent negative economic profit. The fluctuations in invested capital appear to have a secondary effect on the economic profit figures, but are less impactful than the NOPAT and cost of capital trends.

The financial data reveals significant fluctuations in the company's profitability over the five-year period.

Net income (loss) attributable to Royal Caribbean Cruises Ltd.

From 2017 to 2019, net income exhibited a steady increase, rising from approximately $1.63 billion to nearly $1.88 billion. However, the years 2020 and 2021 show a drastic reversal to substantial net losses, amounting to negative $5.80 billion and negative $5.26 billion respectively. This sharp decline reflects a critical downturn in net profitability during these latter years.

Net operating profit after taxes (NOPAT)

Similarly, NOPAT increased consistently from about $1.90 billion in 2017 to approximately $2.33 billion in 2019, demonstrating a positive operational performance before taxes. In contrast, 2020 and 2021 recorded significant negative NOPAT values, at nearly negative $4.92 billion and negative $3.96 billion respectively, signaling severe operational challenges impacting the company’s profitability after tax obligations.

Overall, the data indicates a period of strong financial performance up until 2019, followed by a sharp deterioration in both net income and operational profitability in the subsequent two years. The magnitude of losses recorded in 2020 and 2021 suggests substantial adverse impacts on the company's financial health during this period.

Income Tax (Expense) Benefit

The income tax benefit showed an increasing trend from 2017 to 2019, rising from 18,300 thousand US dollars in 2017 to 32,600 thousand US dollars in 2019. However, there was a significant reversal in 2020 and 2021, with the figures turning into expenses of 15,000 thousand and 45,200 thousand US dollars respectively. This indicates a shift from tax benefits to tax expenses in these two years, suggesting a possible change in profitability, tax regulations, or financial strategy.

Cash Operating Taxes

Cash operating taxes followed a similar pattern to the income tax benefit, increasing steadily from 21,373 thousand US dollars in 2017 to 39,556 thousand US dollars in 2019. In 2020 and 2021, there was a sharp decline turning into negative values of 12,780 thousand and 34,028 thousand US dollars respectively. This negative value implies possible tax refunds, credits, or adjustments during these years, which aligns with the shift observed in income tax figures.

Overall Insight

The data reflects a period of consistent growth in tax-related expenses and benefits until 2019, followed by a sudden and marked change in 2020 and 2021. The switch from positive to negative figures likely indicates an unusual financial situation or external impact affecting taxable income and tax payments during the latter years, possibly linked to broader economic factors or company-specific events.

Total Reported Debt & Leases

The total reported debt and leases increased significantly over the period analyzed. Starting from approximately $7.7 billion at the end of 2017, it rose markedly to about $11.3 billion by the end of 2018. The upward trend continued with a smaller increase to $11.7 billion by the end of 2019, followed by a very sharp rise to nearly $20.0 billion at the end of 2020. By the end of 2021, the figure further increased to around $21.7 billion. This reflects a consistent and steep growth in the company's leverage position over the five-year period.

Shareholders’ Equity

Shareholders’ equity showed a fluctuating and ultimately declining trend. Starting at approximately $10.7 billion at the end of 2017, it rose slightly to about $11.1 billion in 2018, and then further increased to $12.2 billion at the end of 2019, marking the highest level within the timeframe. However, by the end of 2020, equity decreased sharply to around $8.8 billion. This downward trajectory continued in 2021, with equity dropping significantly to approximately $5.1 billion. The decline suggests a reduction in net asset value, possibly indicating losses, dividend payments, or other factors reducing equity.

Invested Capital

Invested capital demonstrated an overall upward trend with some volatility. It increased from about $18.1 billion at the end of 2017 to approximately $22.8 billion in 2018, continuing to climb to $24.2 billion at the end of 2019. A notable increase occurred by the end of 2020, reaching about $28.4 billion. However, by the end of 2021, invested capital decreased to roughly $26.3 billion. This pattern indicates ongoing investment or capital deployment, particularly between 2019 and 2020, with a slight contraction observed in the final period.

Overall Insights

The data reveals a pronounced increase in total debt and leases, especially during 2020 and 2021, suggesting increased borrowing or lease commitments, possibly to support operations or capital expenditures during challenging periods. Meanwhile, shareholders’ equity experienced a marked decline after 2019, which could signal operational difficulties, impairments, or significant distributions. Invested capital's growth until 2020 suggests increased resource commitment, with a slight reduction in 2021 potentially reflecting asset disposals or changes in capital structure. The combination of rising debt and falling equity points to increased financial leverage and potential risk in the company’s capital structure.

The economic spread ratio demonstrates a consistent decline over the observed period, indicating a worsening trend in the company’s ability to generate returns exceeding its cost of capital. Economic profit consistently remains negative throughout the period, contributing to the negative economic spread.

Economic Spread Ratio

The economic spread ratio decreased from -19.70% in 2017 to -34.96% in 2021. This represents a substantial deterioration in the company’s profitability relative to its invested capital. The most significant decline occurred between 2019 and 2020, moving from -14.77% to -39.23%, likely reflecting the impact of external factors during that year. A slight improvement is observed between 2020 and 2021, though the ratio remains considerably lower than in earlier years.

Economic Profit

Economic profit is negative across all reported years, ranging from approximately -3.57 billion to -11.16 billion US dollars. The largest negative economic profit occurred in 2020, aligning with the most substantial decrease in the economic spread ratio. While the absolute value of economic profit decreased from 2020 to 2021, it remained significantly negative, continuing to exert downward pressure on the economic spread.

Invested Capital

Invested capital generally increased from 2017 to 2020, rising from 18.11 million to 28.44 million US dollars. This increase in invested capital, coupled with consistently negative economic profit, contributed to the widening negative economic spread. A decrease in invested capital is observed in 2021, falling to 26.32 million US dollars, but this did not sufficiently offset the continued negative economic profit to improve the economic spread ratio significantly.

The consistent negative economic spread ratio suggests the company’s investments are not generating sufficient returns to cover the cost of capital. The trend indicates a growing gap between the cost of capital and the returns generated from invested capital, which warrants further investigation into the underlying drivers of profitability and capital allocation.

The economic profit margin demonstrates a consistently negative trend over the observed period. Initially, the margin exhibited substantial negative values, which worsened significantly during 2020 and 2021 before showing a slight moderation.

Economic Profit Margin (2017-2019)

From 2017 to 2019, the economic profit margin fluctuated between -32.60% and -42.89%. While consistently negative, the margin showed a slight improvement from -42.89% in 2018 to -32.60% in 2019, suggesting a potential, albeit limited, increase in value creation relative to revenue during that period. This coincided with increasing revenues.

Economic Profit Margin (2020-2021)

A dramatic deterioration in the economic profit margin occurred in 2020, reaching -505.08%. This substantial decline is associated with a significant decrease in revenues. The margin worsened further in 2021, reaching -600.64%, despite a modest revenue increase from 2020. This indicates that the decline in economic profit outpaced the revenue recovery.

Relationship to Revenues

The economic profit margin’s movement is strongly correlated with revenue fluctuations. The largest negative swings in the margin correspond with the years experiencing the most substantial revenue declines. The magnitude of the negative margin in 2020 and 2021 suggests that the cost of capital significantly exceeded the operating profit generated during those years.

Overall Trend

The overall trend reveals a consistent inability to generate economic profit. The substantial negative margins, particularly in the latter years of the period, indicate a significant shortfall in returns relative to the cost of capital. The increasing negative values suggest a growing disparity between the cost of capital and the economic profit generated.