Royal Caribbean outperforms on strong cruise demand, projects 40% EPS

Update: RCL shares traded to a 52-week high of $133.97 before settling at $126.96, down 54 cents.

$9.50 to $9.70 EPS forecast

With a record start to wave season, the company is now guiding to a 40% year-over-year increase in adjusted earnings per share, in the $9.50 to $9.70 range, for 2024, above the $9.19 consensus. It also expects to achieve two Trifecta goals: triple digit EBITDA per available passenger cruise day and return on invested capital in the teens.

Fourth quarter results

Adjusted net income was $0.3b, or $1.25 per share, above Wall Street's $1.13 consensus forecast and compared to the year-ago loss of $0.3b, or $1.12 per share. US GAAP net income was $0.3b, or $1.06 per share, compared to 2022 Q4's $0.5b loss, or $1.96 per share. Revenues were $3.3b, in line with consensus.

Net yields increased 17.9% in constant currency (17.3% as reported) when compared to Q4 2019. Occupancy was 105%.

Net cruise costs, excluding fuel, per available passenger cruise day increased 6.7% in constant currency (6.2% as reported) compared to 2019 and included approximately 250 basis points related to increased stock compensation expense compared to prior guidance due to the significant rise in share price.

'2023 was an exceptional year, propelled by unmatched demand for our brands from new and loyal guests,' said Jason Liberty, president and CEO, Royal Caribbean Group. 'With the wind in our sails and record-breaking bookings, 2024 is poised to be another robust year, and we expect to achieve two of our Trifecta goals one year early.'

Full-year 2023 results

For full-year 2023, adjusted net income was $1.8b, or $6.77 per share, and US GAAP net income was $1.7b, or $6.31/share, on revenues of $13.9b.

Net yields increased 13.5% in constant currency (13.2% as reported), versus 2019. Net cruise costs, excluding fuel, per APCD increased 7.9% in constant currency (7.5% as reported). This includes approximately 65 basis points, compared to prior guidance, related to increased stock compensation expense due to the significant rise in share price.

2024 outlook

Royal Caribbean said wave season is off to a record start. Booked load factors and rates are higher than all prior years.

2024 net yields are expected to increase 5.25% to 7.25% in constant currency (5.3% to 7.3% as reported), compared to 2023. Net cruises costs, excluding fuel, per APCD are expected to rise 3.75% to 4.25% in constant currency (3.8% to 4.3% as reported) compared to 2023. The figures include 315 basis points of costs related to increased dry dock days and the new operations of Hideaway Beach at Perfect Day at CocoCay.

Weeks of booking highs, 'excellent' response to Icon

Royal Caribbean is 'very encouraged' about the demand and pricing environment for 2024. Overall, the five best booking weeks in company history have occurred since the last earnings call in October, including the first three weeks of wave season.

As a result, Royal Caribbean is now in a record booked position in both rate and volume. The company said the booking strength is widespread across all key itineraries. Spending on board and pre-cruise purchases continue to exceed prior years, driven by greater participation at higher prices.

Customer deposit balance was at $5.3b as of Dec. 31.

Royal Caribbean described the market response to its new ships — particularly Icon of the Seas — existing hardware and the expansion of Perfect Day at CocoCay with Hideaway Beach as 'excellent.'

Q1 forecast

The company expects Q1 adjusted EPS in the range of $1.10 to $1.20. This is ahead of Wall Street's 86-cent consensus.

Net yields are expected to increase 15.2% to 15.7% in constant currency (15.3% to 15.8% as reported) compared to 2023. First quarter yield growth is benefiting from both oad factor catch-up and the annualization of pricing power that began during the 2023 wave season.

Net cruise costs, excluding fuel, per APCD, are expected to rise 7.1% to 7.6% in constant currency (7.2% to 7.7% as reported) compared to 2023 and include 380 basis points of costs related to increased dry dock days and Hideaway Beach operations.

Close to investment-grade metrics in 2024

Liquidity was $3.1b, including cash and cash equivalents and undrawn revolving credit facility capacity, at Dec. 31.

'Our accelerated performance and commitment to strengthening the balance sheet allowed us to pay off approximately $4 billion of debt in 2023 and significantly reduce leverage consistent with our Trifecta goal of returning to investment grade metrics,' CFO Naftali Holtz said, 'We will continue to strategically allocate capital to invest in our future while also paying down debt, and will be close to investment grade metrics in 2024.'

Scheduled debt maturities for 2024, 2025, 2026 and 2027 at Dec. 31 were $1.7b, $2.6b, $3.4b and $3.8b, respectively. Approximately 80% of the company's debt is tied to fixed interest rates.

Capex and capacity increases

Capital expenditures for 2024 are expected to total approximately $3.3b.

Utopia of the Seas and Silver Ray are scheduled for delivery this year, making an 8.5% capacity increase.

Capacity changes for 2025, 2026 and 2027 are expected to be 5%, 6% and 4%, respectively, not including potential ship sales or additions.

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