Royal Caribbean beats Q2 forecasts, boosts outlook on strong demand

Shares were up more than 11% in pre-market-open trading.

Q2's adjusted net income of $491.7m, or $1.82 per share ($458.8m or $1.70/share in US GAAP) was higher than Wall Street's $1.55/share expectation due to stronger pricing on closer-in demand and further strength in onboard revenue.

This compares to adjusted net loss of net loss of $0.5b or a loss of $2.08 per share in Q2 2022.

Full year EPS guidance goes to $6 to $6.20

The company raised full year EPS guidance to a range of $6 to $6.20. This compares to the consensus forecast of $4.77.

'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,' Royal Caribbean Group President/CEO Jason Liberty said. 'We also expect to achieve record adjusted EBITDA per [available passenger cruise day] and return on invested capital this year and are well on our way toward achieving our Trifecta goals.'

Strong ticket pricing from both North America and Europe itineraries, combined with strength in onboard revenue, led to better-than-expected revenues of $3.5b, higher than the $3.41b consensus, and the significant increase in the company's full year outlook for revenue and earnings.

Q2 details

Net yields increased 12.9% in constant currrency and 12.6% as reported, compared to Q2 2019. Net cruise costs, excluding fuel, per APCD increased 9% in constant currency and 8.6% as reported.

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.

Adjusted EBITDA was a record $1.2b and operating cash flow was $1.4b.

Load factor was 105%.

Full year outlook

Net yields are expected to increase 11.5% to 12% in constant currency and as reported compared to 2019. Net cruise costs, excluding fuel, per APCD are expected to be up approximately 7% in constant currency and 6.7% as reported, compared to 2019.

The cost increase from previous guidance is driven by an increase in stock compensation expense due to the rise in share price and expected financial performance.

Q3 EPS forecast $3.38 to $3.48

Third quarter net yields are expected to increase 13.5% to 14% in constant currency and 14% to 14.5% as reported, with net cruise costs, excluding fuel, per APCD, projected to rise approximately 11.2% in constant currency and as reported.

Approximately half of the cost increase compared to 2019 is related to structural costs, timing shift of operating expenses from Q2 and increase in stock compensation expense.

Adjusted EPS are expected in the range of $3.38 to $3.48.

Bookings update

Q2 booking volumes remained significantly higher than the corresponding period in 2019 and at record pricing levels. Royal Caribbean said 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 on board and pre-cruise purchases continue to significantly exceed 2019 levels driven by greater participation at higher prices.

Record high customer deposits

As of June 30, Royal Caribbean Group's customer deposit balance was at a record $5.7b.

Liquidity was $3.7b.

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