Royal Caribbean Cruises Ltd. (RCL) on Q1 2023 Results - Earnings Call Transcript
Operator: Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Group First Quarter 2023 Earnings and Business Update Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Michael McCarthy, Vice President, Investor Relations. Please go ahead, sir. Michael McCarthy: Good morning, everyone, and thank you for joining us today for our first quarter 2023 business update conference call. Joining me here in Miami are Jason Liberty, our Chief Executive Officer; Naftali Holtz, our Chief Financial Officer; and Michael Bayley, President and CEO of Royal Caribbean International. Before we get started, I'd like to note that we will be making forward-looking statements during this call. These statements are based on management's current expectations and are subject to risks and uncertainties. A number of factors could cause actual results to differ materially from our current expectations. Please refer to our earnings release issued this morning as well as our filings with the SEC for a description of these factors. We do not undertake to update any forward-looking statements as circumstances change. Also, we will be discussing certain non-GAAP financial measures, which are adjusted as defined, and a reconciliation of all non-GAAP items can be found on our website and in our earnings release available at www.rcl Investor com. Jason will begin the call by providing a strategic overview and update on the business. Naftali will follow with a recap of our first quarter and an update on our latest actions and on the current booking environment. We will then open the call for your questions. With that, I'm pleased to turn the call over to Jason. Jason Liberty: Thank you, Michael, and good morning, everyone. I'm thrilled to be here this morning to share our incredible first quarter results and the strong trajectory of our business. When we turn the page from 2022 into 2023 with the full strength of our operating platform deployed and numerous tailwinds related to the consumers' desire to travel and experience the world, we believe this would be a great year. We expect it to finally return to yield growth in the first quarter and accelerate even more through the rest of the year. Well, as you saw in the press release this morning, what transpired over the past four months was much better than we had anticipated. Our brands are stronger than ever and our yield in Q1 blew away previous records. Before getting into the detail, I want to thank the entire Royal Caribbean Group team, 100,000 plus strong for another outstanding quarter. Their dedication and commitment allow us to deliver the very best vacation experiences responsibly while generating strong financial results. As highlighted on Slide 4, it has been a tremendous first quarter that set us well on the path to a year that is significantly better than we expected just a few months back. We knew that demand for our business was strong. what has transpired was a record-breaking extended wave season that translated into robust bookings and meaningfully better prices. In the first quarter, we delivered a record 1.9 million memorable vacations, achieved 102% load factor at higher pricing than 2019, and earned exceptional guest satisfaction scores. Yields grew 5.8% compared to record 2019 levels, and were significantly above our guidance. Strong demand for Caribbean itineraries translated into higher load factors had better-than-expected pricing for both ticket and onboard. Our yields are now exceeding record highs, and we expect this trend to continue for the rest of the year and beyond. This is particularly significant because while we thought the first quarter would be a transition period, we always expected the rest of the year to be strong. The fact that demand for the coming nine months is so much stronger than our already robust expectations says a lot about the strength of the consumer and the strength of our brands. Adjusted EBITDA and adjusted EPS in the first quarter were both considerably higher than our guidance, and we generated $1.3 billion of operating cash flow. Strong revenues, our continued focus on increasing margins, and favorable timing of operating expenses contributed to the better-than-expected earnings performance. The acceleration of demand, coupled with our team's incredible execution is also translating into higher revenue and earnings expectations for the full year. As you can see on Page 5, we are more than doubling our full-year yield growth expectations to 6.75% to 7.25% on increased expectations for ticket and onboard revenues. We are also increasing earnings per share expectations by 40% to $4.40, to $4.80 as we continue to focus on expanding margins as revenue accelerates. Now I'll provide some insight into the robust demand environment and our incredible wave season. Bookings outpaced 2019 levels by a very wide margin throughout the entire first quarter and into April. Pricing was also significantly higher as our commercial apparatus across all channels has been driving quality demand into our vacation ecosystem. The strong wave season resulted in an acceleration of our book position in relation to prior years. The booking window is now completely back to normal, demonstrating consumers' desire to continue to plan their vacation travel with us well in advance. While demand has been strong across all products and markets, we continue to see exceptional strength from the North American consumer. This strength in combination with the incredible, Perfect Day at CocoCay has resulted in record yields for our Caribbean sailings. In addition, European bookings are nicely outpacing 2019 levels with peak summer sailings trending particularly well in recent weeks. The robust demand we see for our products as a result of our superior brands, hardware, enhanced destination offerings, a nimble and global sourcing model and strong execution by our teams. As you heard me say on prior earnings calls, we continue to see financially healthy and engaged consumers our eager to vacation and build memories with us. Our customer sentiment remains strong and is bolstered by strong labor markets, high wages and excess savings. Secular tailwinds continue to benefit us as consumers continue to shift preferences and spend from goods to experiences, resulting in strong entertainment and travel spend. This trend continued in the first quarter where spend on experience was 24% higher than 2019 and double the spend on goods. Further, our research shows that consumers plan to continue prioritizing leisure travel over other spend. Our addressable market is plentiful and continues to be meaningfully larger than it was in 2019. Our product appeals to a broad range of vacationers who are seeking everything from a short getaway to a Perfect Day to a luxury world cruise. Cruising remains an exceptional value proposition. I would actually say it's too attractive of a value proposition, which is allowing us to outperform broader leisure travel as we seek to close the gap to land-based vacations and drive better revenue and happy customers. Cruise search is up 15% versus 2019, significantly outpacing the growth in general vacation search and contributing to the doubling of visitors to our website when compared to 2019. Our vacations are popular among a broad range of consumers, which allows us to attract more and more new customers into our ecosystem. In the first quarter, the percentage of guests who are either new to brand or new to cruise, surpassed 2019 levels by a wide margin. The improvements we have made in our commercial capabilities have allowed us to capture quality demand and expand our share of guest wallet. In the first quarter, about 2/3 of our guests booked some of their onboard activities in advance of their cruise. The comparable figure in 2019 was 48%, so you can see we have used our time well to upgrade our systems. Every dollar of guest spends pre-cruise translates into approximately $0.70 of incremental spend once on board. While we have made a significant leap in our commercial capabilities, we are still in the early innings of our journey, and we'll continue to add features and capabilities to our app and commercial engines. Looking to the rest of 2023, we expect to deliver amazing vacation experiences to over 8 million guests a record yields as we deploy our best-in-class fleet across the best global itineraries. We expect to return to historical load factors in late spring and continue to benefit from a strong pricing environment. We expect to deliver record yields that are 6.75% to 7.75% higher than in 2019 with every one of our brands generating positive direct profit this year. Our strong yield growth outlook is driven by the performance of new hardware, a strong pricing environment, especially for Caribbean itineraries, and continued growth from onboard revenue areas. New hardware has been a great differentiator for us, and we are benefiting from the eight ships that joined our fleet since 2019. This year, each of our wholly owned brands will welcome a new vessel. These ships are sure to continue elevating vacation experiences for our guests and will continue to further drive the competitive advantage and deliver very attractive financial returns. Since all three of these ships will be delivered in the second half of this year, they will be a key yield driver next year. Silversea will welcome Silver Nova this summer, the first of the new evolution class. Celebrity cruises will welcome the fourth in the award-winning Edge series, and Royal Caribbean International will take delivery of the game-changing icon of the seas. Let me spend a minute talking about Icon of the Seas and the excitement she is generating with our customers. With Icon, we set out to create the ultimate vacation for thrill seekers, the chill enthusiasts and everyone in between without compromise. She is getting exceptional demand with bookings well surpassing previous records. Despite being on sale for only five months, Icon is significantly more booked for her inaugural season at materially higher rates than any other Royal Caribbean ship launch. Icon will join the fleet later this year and will debut in the Caribbean in January 2024, with itineraries that include Perfect Day at CocoCay and its new expansion, Hideaway Beach. Moving to costs. Our team have been working hard for several years to reshape our cost structure with the goal of enhancing margins. Our cost outlook for the year reflects our commitment to enhancing profitability while focusing on delivering the best vacation experiences. We continue to expect the business to deliver a record yield and adjusted EBITDA in 2023. Our proven formula for success remains unchanged. Moderate capacity growth, moderate yield growth, though I wouldn't define this year's growth as moderate and strong cost controls will lead to enhanced margins profitability and superior financial performance. We just published our 15th Annual Sustainability Report, providing an in-depth update on our strategy and performance of delivering the best vacation experiences responsibly. In this report, we outlined our progress towards reducing our carbon intensity by double digits by 2025 versus 2019. We expect to deliver on significant milestones of our decarbonization pathway this year including the introduction of advanced technologies on our new ships, such as LNG, fuel cells, and a first-of-its-kind onboard waste-to-energy system. To wrap up, the business continues to accelerate, and we are uniquely positioned to grow earnings and cash flow in 2023 on our way to achieving our trifecta goals. The strength of our brands and operating model continues to grow. We are committed to delivering the best vacation experiences responsibly, and I couldn't be more excited about what's ahead for the Royal Caribbean Group. With that, I will turn it to Naftali. Naf? Naftali Holtz: Thank you, Jason, and good morning, everyone. Let me begin by discussing our results for the first quarter. As you can see on Slide 4, we reported an adjusted net loss of approximately $59 million or $0.23 per share. These results were significantly above our expectations and the high end of our guidance range. Total revenue was $2.9 billion. Adjusted EBITDA was $642 million, and operating cash flow was $1.3 billion, again, significantly above our expectations. We finished the first quarter with a load factor of over 102% at net yields that were up 5.8% for the quarter or 440-basis points higher than the midpoint of our guidance. Better-than-anticipated close-in demand for Caribbean sailings and improving pricing environment and continued strength in onboard revenue were the main drivers for these exceptional results. Higher load factors drove 2/3 of the yield outperformance and higher pricing drove the remainder. Net cruise costs, excluding fuel per APCD, increased 5.8% in constant currency compared to the first quarter of 2019. Net cruise costs for the first quarter included $2.87 per APCD or 240-basis points impact of structural costs. Operating costs also benefited from approximately 160-basis points of favorable timing compared to guidance. First quarter results are a testament to the continued robust demand environment attractive value proposition of our cruise vacations and strong commitment by our teams to deliver the best vacation experiences responsibly. Turning to the booking environment. Bookings have consistently been higher than the same time in 2019, with the gap widening as WAVE extended further into the year than ever before. The booking strength has been particularly evident on Caribbean sailings where our superior hardware and Perfect Day at CocoCay continue to be winning combination. More than half of our Caribbean sailings visit Perfect Day at CocoCay, which is Royal Caribbean International's highest-rated destination in the Caribbean. This is a perfect Day opened midway through the second quarter of 2019. These itineraries are driving outsized yield and pricing growth. While the Caribbean has seen booking strength, performance of our European itineraries is also aligned with our initial expectations. European itineraries account for 17% of full-year capacity peaking at 35% in the third quarter. Bookings for our European sailings have been nicely outpacing 2019 levels with peak summer trending particularly well in recent weeks. Several of our newest ships, including Celebrity Beyond, Odyssey of the Seas and Silver Dawn, are sailing in Europe this summer and are attracting quality demand and rates. Now let me review our 2023 outlook. If you turn to Slide 8, you will see our updated guidance for the full year 2023. We expect net yield growth of 6.75% to 7.75% for the full year. This represents an approximately 400-basis point increase from the midpoint of our prior guidance. About 1/3 of the increase is due to strong Q1 results with the remainder due to better business outlook for the rest of the year. The underlying yield improvement is driven by the performance of new hardware, strong demand for our core products, particularly Caribbean itineraries and continued strong growth from onboard revenue areas. While yield growth is expected to ramp up for the rest of the year, there is some variability at the quarter level. Yield growth is likely to be the highest in Q2 where we lapped the opening of Perfect Day at CocoCay and benefit from our Caribbean deployment mix. As you can see from our guidance, yields for the back half of the full year are expected to be up by more than 6%. From a cost perspective, net cruise costs, excluding fuel, are expected to be up 5.5% to 6.5% for the full year as compared to 2019. Our cost outlook reflects our culture of continuous improvement and innovation. And we are benefiting from all the actions we have taken over the last several years to support enhanced margins. Net cruise costs also include 210-basis points of structural cost that we did not have in 2019. Those include, for example, costs related to the full-year operations of Perfect Day at CocoCay and our new Galveston terminal. We continue to actively manage persistent inflation across categories, including food and beverage, airfare, and shoreside human capital. Our teams continue to find ways to manage through inflation while maintaining exceptional guest experience and increasing profitability. Fuel expense is expected to be approximately $1.1 billion for the year and we are 54% hedged for the remaining of the year. Looking ahead, fuel consumption is 25% hedged for 2024, and 5% hedged for 2025. Based on the current business outlook, along with current fuel pricing, currency exchange rates, and interest rates, we expect record adjusted EBITDA and adjusted earnings per share of $4.40 to $4.80. Now turning to Slide 9. I'll provide some color on second quarter capacity and guidance. We plan to operate about 11.7 million APCDs during the second quarter. Net yields are expected to be up 10.1% to 10.6% compared to 2019. Exceptional strength in Caribbean itineraries combined with our amazing private island destination Perfect Day at CocoCay is driving the increase in yields. Net cruise costs, excluding fuel, are expected to be up approximately 8.9% as we continue to focus on margin expansion while revenue accelerates. Second quarter operating costs carry approximately 430-basis points of incremental expenses to weigh on NCCx when compared to 2019, of which half are structural and half are timing from the first quarter. So, in summary, based on current currency exchange rates, fuel rates and interest rates, we expect adjusted earnings per share of $1.50 to $1.60 for the second quarter. Turning to our balance sheet. We ended the quarter with $3.9 billion in liquidity. Our liquidity remains very strong, and we are focused on expanding our margins to further enhance EBITDA and free cash flow. During the first quarter, we repaid $286 million of debt maturities as well as $2.4 billion of revolver advances. In February, we issued $700 million of senior guaranteed notes at 7.25% coupon to refinance 2023 and 2024 debt maturities. Our access to capital remains strong, and our execution and performance resonate with our investors and financial partners. We will proactively and methodically continue to improve the balance sheet through debt pay downs and opportunistic refinancings. Our remaining scheduled maturities for 2023 are $1.8 billion, made up predominantly of ECA debt amortization, which we expect to pay down with cash on hand and operating cash flow. As the business continues to accelerate and generate strong and growing cash flows, we are committed to a disciplined capital allocation and to return to an investment-grade balance sheet profile in line with our Trifecta goals. In closing, our business continues to accelerate, and we expect to grow yields and margin so we can achieve record adjusted EBITDA in 2023. We remain committed and focused on executing on our strategy and delivering on our mission while achieving Trifecta goals. With that, I will ask our operator to open the call for a question-and-answer session. Operator: [Operator Instructions] We'll go first to Stephen Wieczynski, Stifel. Operator: Your next question comes from Brandt Montour, Barclays. Operator: Next, we'll hear from Robin Farley, UBS. Operator: We'll go next to Vince Ciepiel, Cleveland Research Company. Operator: Next, we'll go to Benjamin Chaiken, Credit Suisse. Operator: Your next question comes from Conor Cunningham from Melius Research. Operator: Matthew Boss from JPMorgan is up next. Operator: Next up, we'll hear from Daniel Politzer, Wells Fargo. Operator: Your next question comes from Fred Wightman, Wolfe Research. Operator: And we'll go to Paul Golding, Macquarie Capital. Operator: Go ahead. Jason Liberty: Thank you. We thank everyone for their participation and interest in the company. Michael McCarthy will be available for any follow-up. So, we wish you all a great day. Thank you. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Royal Caribbean (NYSE:RCL) Maintains Positive Outlook Amid Market Volatility
Royal Caribbean (NYSE:RCL) is a prominent player in the Leisure and Recreation Services sector, known for its extensive cruise offerings. The company competes with other major players like Carnival Corporation and Norwegian Cruise Line. On March 25, 2025, Susquehanna reaffirmed its Positive rating for RCL, advising investors to hold their positions. At that time, RCL's stock price was $225.02.
Investors looking for value stocks in this sector might consider RCL and Airbnb, Inc. (ABNB). According to Zacks Investment Research, RCL holds a Zacks Rank of #2 (Buy), indicating a stronger earnings outlook compared to Airbnb's Zacks Rank of #3 (Hold). This suggests that RCL may be a more attractive option for value investors due to its improved earnings estimates.
RCL's stock price of $225.02 reflects a slight decrease of 0.38, or approximately -0.17%. The stock has traded between $223.17 and $227.32 today. Over the past year, RCL's stock has seen a high of $277.08 and a low of $125.06, showcasing its volatility in the market.
The company's market capitalization is approximately $60.56 billion, indicating its significant presence in the industry. With a trading volume of 1,677,291 shares on the NYSE, RCL remains an actively traded stock, attracting the attention of investors and analysts alike.
Royal Caribbean Group's Strong Financial Performance in Q4 2024
- Royal Caribbean Group (NYSE:RCL) reported an earnings per share (EPS) of $1.63, surpassing the estimated $1.50.
- The company achieved year-over-year revenue growth, increasing from $3.33 billion to $3.76 billion, despite slightly missing estimates.
- Royal Caribbean's stock price experienced positive movement, reflecting the fourth consecutive quarter of surpassing consensus EPS estimates.
Royal Caribbean Group, listed as NYSE:RCL, is a prominent player in the cruise industry, offering a wide range of vacation experiences through its diverse fleet. The company competes with other major cruise lines like Carnival Corporation and Norwegian Cruise Line Holdings. On January 28, 2025, Royal Caribbean reported earnings per share (EPS) of $1.63, exceeding the estimated $1.50, showcasing its strong financial performance.
During the Q4 2024 earnings call, key figures like CEO Jason Liberty and CFO Naftali Holtz discussed the company's financial results and strategic initiatives. Despite revenue slightly missing the $3.76 billion estimate, the company achieved year-over-year growth, with revenue increasing from $3.33 billion in the same period last year. This growth is attributed to strong pricing and onboard revenue strength.
Royal Caribbean's stock price saw positive movement following the earnings release, as highlighted by the Zacks Consensus Estimate. The company reported an 8.67% earnings surprise, with EPS improving from $1.25 in the previous year. This marks the fourth consecutive quarter of surpassing consensus EPS estimates, reflecting consistent financial performance.
The company's financial metrics provide insight into its market valuation. With a P/E ratio of 25.10, investors are willing to pay $25.10 for every dollar of earnings. The price-to-sales ratio of 4.38 and enterprise value to sales ratio of 5.62 indicate the market's valuation of Royal Caribbean's revenue and total worth. However, a debt-to-equity ratio of 2.75 suggests significant reliance on debt financing.
Despite these financial achievements, Royal Caribbean faces potential liquidity challenges, as indicated by a current ratio of 0.17. This ratio measures the company's ability to meet short-term obligations, and a low value may suggest difficulties in covering these liabilities. Nonetheless, the company's earnings yield of 3.98% offers a return on investment for shareholders, highlighting its profitability.
Royal Caribbean Tops Q2 Earnings Expectations, Raises Full-Year Guidance, But Shares Fall
Royal Caribbean (NYSE:RCL) announced its second-quarter results on Thursday, exceeding analyst expectations with an adjusted EPS of $3.21, higher than the Street estimate of $2.75.
The cruise line operator reported revenue of $4.1 billion, surpassing the consensus estimate of $4.04 billion. Despite the earnings beat, Royal Caribbean shares fell by 2% in pre-market today.
The company credited its strong performance to robust pricing on close-in demand and onboard revenue, as well as favorable expense timing. Year-over-year, Royal Caribbean's net income surged to $854 million, or $3.11 per share, from $459 million, or $1.70 per share, in the second quarter of the previous year.
Adjusted net income also increased to $882 million, or $3.21 per share, from $492 million, or $1.82 per share, year-over-year. President and CEO Jason Liberty emphasized the exceptional demand for Royal Caribbean's vacation experiences as a significant factor in the company's accelerated performance and substantial yield growth over the past several years.
Looking ahead, Royal Caribbean raised its full-year 2024 adjusted EPS guidance to a range of $11.35 to $11.45, reflecting a 68% year-over-year growth and surpassing the Street estimate of $11.08.
This optimistic outlook is supported by the company's record bookings and strong consumer spending onboard and through pre-cruise purchases.
For the third quarter of 2024, Royal Caribbean anticipates an adjusted EPS between $4.90 and $5.00. Net yields are expected to increase by 6.5% to 7.0%, and net cruise costs, excluding fuel per available passenger cruise days, are projected to rise by 4.7% to 5.2%.
Royal Caribbean Price Target Raised by Wells Fargo: A Deep Dive into the Optimistic Outlook
- Wells Fargo increases Royal Caribbean's price target to $165, indicating a 15.5% potential upside.
- Royal Caribbean boasts an average brokerage recommendation (ABR) of 1.39, leaning towards a Strong Buy.
- The company's shares have surged by 90% over the past year, with a record-high adjusted EPS forecast for 2024.
Daniel Politzer of Wells Fargo has recently updated the price target for NYSE:RCL, Royal Caribbean, to $165, which is a 15.5% increase from its current trading price of $142.86. This adjustment, reported on May 17, 2024, by TheFly, reflects a growing confidence in the cruise operator's financial health and market performance. Royal Caribbean, known for its luxury cruise services, has been navigating through the competitive waters of the travel and leisure industry, facing off against rivals with its innovative offerings and global presence.
The optimism from Wells Fargo aligns with the broader sentiment among Wall Street analysts. With an average brokerage recommendation (ABR) of 1.39, indicating a position between Strong Buy and Buy, Royal Caribbean enjoys a favorable outlook from the investment community. This rating, derived from the assessments of 18 brokerage firms, showcases a strong vote of confidence, with 14 analysts recommending a Strong Buy and one advocating for a Buy. This consensus underscores the analysts' belief in Royal Caribbean's potential for growth and positive stock movement.
Supporting this positive outlook is Royal Caribbean's impressive financial performance. The company's shares have surged by 90% over the past year, propelled by better-than-expected financial results for the first quarter of 2024 and a promising forecast for the remainder of the year. On April 25, Royal Caribbean raised its full-year adjusted earnings per share (EPS) projection to between $10.70 and $10.90, up from earlier estimates. This adjustment points to a record-high adjusted EPS for 2024, signaling a significant turnaround and robust future for the company.
The cruise operator's success can be attributed to its ships operating at full capacity, with passengers spending more onboard, thus enhancing profitability. Additionally, Royal Caribbean has effectively managed its substantial debt, even lowering the interest rate on some of its obligations. These strategic financial maneuvers, coupled with strong operational performance, are key drivers behind the optimistic earnings forecast.
As Royal Caribbean's stock reached its highest price for the year at $144.339, up significantly from its year-low of $76.31, the company's market capitalization has grown to approximately $36.76 billion. With a trading volume of about 2.54 million shares, the company's financial health and strategic positioning suggest a compelling investment opportunity, as indicated by the recent price target adjustment and the strong confidence from analysts and investors alike.
Royal Caribbean Shares Up 2% Following Q3 Beat & Guidance Raise
Shares of Royal Caribbean (NYSE:RCL) saw a rise of over 2% intra-day today due to impressive third-quarter results and an upward revision in their guidance.
For the third quarter, the cruise company posted an adjusted EPS of $3.85, surpassing the expected $3.47. Their revenue also witnessed a 39% growth, reaching $4.16 billion and exceeding the anticipated $4.05 billion.
The superior performance, as stated by the company, can be attributed to heightened demand in last-minute bookings and a notable increase in onboard revenue.
Moreover, based on the robust demand and continued onboard revenue growth, Royal Caribbean raised its forecast for the full-year adjusted EPS to a range of $6.58 to $6.63, which is considerably higher than the previously estimated consensus of $6.15.
Royal Caribbean Reports Q4 Beat, Shares Soar 7%
Royal Caribbean (NYSE:RCL) reported its Q4 results on Tuesday, with EPS coming in at ($1.12), compared to the Street estimate of ($1.31). Revenue was $2.6 billion, roughly in line with the Street estimate of $2.61 billion. Following the earnings announcement, shares surged more than 7% on Tuesday.
The company and cruise peers are benefiting from strong demand and general price insensitivity across the broader travel vertical. It’s pretty clear that the company is operating at an extraordinarily high level right now, in terms of controlling costs while striking an optimal balance of pricing and volume growth.
The company expects Q1/23 EPS to be in the range of ($0.65)-($0.85), compared to the Street estimate of ($0.80). For fiscal 2023, the company expects EPS in the range of $3.00-$3.60, compared to the Street estimate of $3.25.
