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Shares in cruise operators have soared in 2023 amid a boom in international travel demand.
Daniel Slim/AFP via Getty Images
Royal Caribbean
needed something special in its earnings to keep the cruise stock’s remarkable rally going.
It more than delivered, with a strong earnings beat and a 33% full-year guidance hike as demand remained white hot.
The cruise operator’s stock has more than doubled so far in 2023, and the bar was high coming into second-quarter earnings.
The company convincingly beat expectations—reporting adjusted earnings of $1.82 per share, ahead of analysts’ estimates of $1.57.
Royal Caribbean
cited strong close-in, or short notice, demand and further strength in onboard revenue, for the strong performance.
The “accelerating demand environment” means it now expects full-year earnings to be between $6 and $6.20 per share, up from a previous forecast range of $4.40 to $4.80.
The stock soared 8.2% higher to $109.16 early Thursday.
Cruise line stocks have surged in 2023 as the sector’s lagging recovery has accelerated, boosted by hot demand for international travel. Royal Caribbean (ticker: RCL) has climbed 104%,
Carnival
Corp
oration (CCL) has risen 119%, and
Norwegian Cruise Line Holdings
(NCLH) is up 70% so far this year as of Wednesday’s close.
Other travel stocks, including domestically focused U.S. airlines, face signs of a slowdown in consumer spending, with
Southwest Airlines
‘ (LUV) earnings Thursday adding to those fears.
But cruise companies—still in the honeymoon era of the post-Covid-19 recovery, with months of pent-up demand ahead—are unlikely to feel such effects until at least 2024.
However, that doesn’t necessarily mean the stocks will keep rising. The impressive 2023 rally means investors’ expectations are high.
“We see the conflict with the stocks/sector today not with ‘is cruise demand recovering?’ Rather, ‘how much of that recovery is already priced in?’” Truist analysts wrote in a note last week. They said they are “becoming more Neutral” on cruise stocks, and have a Hold rating on Royal Caribbean.
But Royal Caribbean had no problem beating the lofty expectations, and its guidance raise suggests the market has actually been underplaying the strength of the recovery.
“Going into the quarter, investor expectations for the earnings results and expected guidance raise were high and this report beat those expectations,” Truist’s C. Patrick School said in a note after earnings. “We see the earnings beat primarily driven by better-than-expected passenger-ticket revenue,” he added, maintaining a Hold rating with a price target of $115.
In the third quarter, typically the best three months for cruise operators, the company expects to report earnings of between $3.38 and $3.48 per share. Before its earnings, analysts were expecting EPS of $2.87.
Royal Caribbean also blew its own full-year earnings guidance out of the water, such is the strength of demand at the moment.
“Our brands continue to fire on all cylinders, resulting in record yields and second-quarter earnings significantly exceeding our expectations,” CEO Jason Liberty said in a statement. “Demand for cruising and our brands is exceptionally strong and we have seen another step change in booking volumes and pricing,” he added.
U.S. airlines, such as
Alaska Air
(ALK), Southwest, and
American Airlines
(AAL), have shown record quarters aren’t enough this earnings season. Royal Caribbean is at a different stage of recovery, and its earnings were able to keep the momentum going.
It was also boosting other cruise operators early Thursday. Norwegian Cruise Line stock rose 4.5% in early trading, while Carnival climbed 4%.
Write to Callum Keown at callum.keown@barrons.com