Pricing lifts Royal Caribbean's Q3, full-year outlook goes higher
Elevated demand for cruises continues as Royal Caribbean builds its 2025 business.
October 29, 2024
Royal Caribbean Group beat third quarter earnings forecasts on stronger pricing for close-in demand and lower costs due to timing and lifted full-year guidance while also projecting 2025 earnings per share of at least $14.
Q3 adjusted net income was $1.4b, or $5.20 per share, above Wall Street's $5.03 consensus and higher than the $1.1b, or $3.85 per share, a year ago. Adjusted EBITDA was $2.1b. US GAAP net income was $1.1b, or $4.21 per share.
Total revenues were $4.9b, in line with expectations.
Full-year EPS forecast $11.57 to $11.62
Royal Caribbean raised its full year 2024 adjusted EPS guidance to $11.57 to $11.62. This compares to the $11.57 consensus. The increase is driven by the strong revenue performance in Q3 and an increase in pricing expectations for Q4.
Q4 adjusted EPS guidance of $1.40 to $1.45 includes 24 cents of headwinds — one-third related to Hurricane Milton, with the remainder driven by the timing of costs shifting from Q3, and higher non-cash stock compensation.
2025 EPS 'to start with a $14 handle'
'We see elevated demand patterns continuing as we build the business for 2025, and although the yield comparable will be a high bar, our proven formula of moderate capacity growth, moderate yield growth and strong cost discipline is expected to continue to deliver strong financial results,' Royal Caribbean Group CEO Jason Liberty said.
'While we are still very early in the planning process, we anticipate earnings per share in 2025 to start with a $14 handle.'
This is above the $13.64 consensus.
Third quarter
Load factor was 111%. Net yields rose 7.9% in constant currency and as reported. Net cruise costs excluding fuel per available passenger cruise day (APCD), increased 4% in constant currency and as reported.
Full-year outlook
Net yields are expected to increase 10.8% to 11.3% in constant currency, 10.9% to 11.4% as reported. Net cruise costs per APCD are expected to increase approximately 6.2% to 6.7% in constant currency and as reported. The cost increase, compared to prior guidance, is driven by higher stock-based compensation.
Adjusted EPS is expected to grow 71% year-over-year and be in the range of $11.57 to $11.62.
Q4
Net yields are expected to increase 5.1% to 5.6% in constant currency and 5.3% to 5.8% as reported compared to the prior year period. The expected growth in yield is driven by strong demand for Caribbean itineraries and continued strength in onboard revenue. Net yield expectations include approximately 40 basis points of negative impact from Hurricane Milton.
Q4's expected yield growth is on top of 17.9% growth in net yields in constant currency in Q4 2023 as compared to the same period in 2019.
Net cruise costs excluding fuel per APCD are expected to increase 11.6% to 12.1% in constant currency and 11.7% to 12.2% as-reported as compared to the same period in the prior year. The year-over-year increase is predominately driven by an increase in dry dock days, non-cash stock compensation and shifting of costs from the third quarter.
Update on bookings and onboard revenue
The demand and pricing environment accelerated since the last earnings call, exceeding 2023 levels. Closer-in demand for 2024 sailings exceeded expectations, contributing to higher load factors at higher prices and higher onboard revenue for the third quarter.
Consumer spending onboard, as well as pre-cruise purchases, continues to significantly exceed 2023 levels driven by greater participation at higher prices.
Royal Caribbean called the market response to its new ships, existing fleet and private destinations 'excellent and accelerating, further positioning the company for yield growth in 2025. Demand for 2025 is strong with booked load factors in line with prior years and at higher rates, allowing for further pricing and yield growth as 2025 bookings continue to ramp up.'
CFO Naftali Holtz said the company's 'strong booked position is exactly where we want to be to further optimize our yield profile and deliver on our formula of success.'
$3.9b iquidity and return to unsecured capital structure
As of Sept. 30, Royal Caribbean Group's liquidity position was $3.9b, including cash and cash equivalents and undrawn revolving credit facility capacity.
'This quarter, we achieved an important milestone of returning to a fully unsecured capital structure while also reducing cost of capital and recapturing a portion of our COVID-era share dilution,' Holtz said. 'Our strong balance sheet position allows us to further support our growth ambitions and expand capital allocation, while delivering strong cash flow and maintaining investment grade balance sheet metrics.'
Capex
Capital expenditures for the full year 2024 are expected to be approximately $3.4b, based on current foreign exchange rates, and are predominantly related to the orderbook. Non-new ship-related capital expenditures are expected to be $0.7b.
Capacity changes for 2024, 2025, 2026, and 2027 are expected to be 8%, 5%, 7% and 5%, respectively.
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