Cruise Line Stock Sinks Despite Beating EPS and Raised Guidance

Key Points

• Royal Caribbean is the leading cruise ship operator, managing over 60 ships under the Royal Caribbean International, Celebrity Cruises, and Silversea Cruises brands.
• The company reached its trifecta goals 18 months early and reinstated the dividend.
• Royal Caribbean beat Q2 2024 EPS and revenue estimates and raised full-year 2024 top and bottom line guidance, but shares sold off 7.5% following the release.

Cruise line operator Royal Caribbean Cruises Ltd. NYSE: RCL is proving to be in a class all by itself. The company crushed EPS estimates again and raised top and bottom line forecasts again. However, instead of surging to new 52-week highs, a sell-the-news reaction triggered, sending shares lower by 7.5% following its second-quarter earnings release. This doesn’t bode well for its competitors’ stocks, who are still trying to recover back to pre-pandemic levels. The selling reaction could reflect a sentiment shift in the travel and leisure industry or a buying opportunity for investors who have been waiting for a deep pullback.

Royal Caribbean operates in the consumer discretionary sector, competing with cruise operators, including Carnival Co. & plc NYSE: CCL, Norwegian Cruise Line Holdings Ltd. NYSE: NCLH, and Viking Holdings Ltd. NYSE: VIK.

Royal Caribbean Operates Under 3 Brands

While Royal Caribbean is named after its flagship Royal Caribbean International cruise line, it also owns and operates two luxury cruise lines, Celebrity Cruises and Silversea Cruises. Each brand caters to a different market and price point.

Royal Caribbean International caters to families and young adults with a growing share of Millennial and Gen-Z travelers. They have mega-ships, including Icon of the Seas, which is the world’s largest, with all the amenities ranging from water parks to entertainment venues, rollercoasters, and the whole gamut of dining options.

Celebrity Cruises caters to upscale travelers, offering a more sophisticated and refined cruising experience. Their modern contemporary ships focus on culinary experiences with an emphasis on personalized services at a premium.

Silversea Cruises caters to high-income affluent travelers who are paying for exclusive and personalized experiences. Their ships are smaller and more intimate, featuring amenities like butler service, fine dining, and all-inclusive open bars. This brand has the highest price point among the three brands.

RCL Triggers a Rising Wedge Breakdown 

The daily candlestick chart for RCL demonstrates the effect of a rising wedge breakdown pattern. This pattern is comprised of converging rising upper and lower trendlines. The breakdown occurs when the stock falls below the lowering ascending trendline. RCL triggered the breakdown heading into its Q2 2024 earnings release, accelerating the selling despite the solid EPS beat and raised guidance. The daily relative strength index (RSI) fell to and stalled at the 41-band, potentially attempting to bounce. Pullback support levels are at $152.05, $146.67, $141.70, and $136.32.   

Royal Caribbean Posts Strong Q2 2024 Results and Reinstates Dividend

The company reported Q2 2024 EPS of $3.32, beating consensus analyst estimates by 45 cents. Stronger pricing, increased close-in demand, and continued strength in onboard revenues drove the gains. Revenues surged 16.4% YoY to $4.1 billion, beating $4.05 billion consensus estimates. Gross margin yields were up 24.2%. Net yields were up 13.3%.

Royal Caribbean's Board of Directors reinstated the dividend and declared a 40-cent per share dividend payable to shareholders of record at the close of Sept. 20, 2024. Load factors rose 108% in the quarter, indicating strong demand and overbooked cabins due to last-minute cancellations. Gross cruise costs per available passenger cruise days (APCD) rose 4.9% YoY, and net cruise costs (NCC) rose 5.5% as reported. The company closed the quarter with a total liquidity of $3.8 billion, including cash, cash equivalents, and an undrawn credit revolver. Leverage is expected to fall below 3.5x by year's end.

Achieving the Trifecta Goals Ahead of Schedule

Royal Caribbean set out to achieve three goals: triple-digit adjusted EBITDA per APCD, double-digit adjusted EPS, and hit return on invested capital (OIC) in the teens. The trifecta goals were achieved 18 months ahead of schedule.

Bookings and Onboard Revenue was Robust

The demand and pricing environment continues to remain strong since its last quarter. Booking volumes were higher than a year ago and at higher prices. Royal Caribbean continues to be in a record-booked position for 2024 sailings. Consumer onboard spending and pre-cruise purchases continue to significantly exceed 2023 levels, driven by greater participation at higher prices.

Royal Caribbean Raises Full-Year 2024 Guidance

The company raised its full-year 2024 EPS to $11.35 to $11.45, up from $11.09 previously and up 68% YoY. Net yields are expected to increase from 10.4% to 10.9%. NCC, excluding fuel per APCD, is expected to increase by around 6%. Net yields are expected to rise around 6.5% to 7%, driven by the strength in Alaskan and European itineraries. The company expects Q3 2024 adjusted EPS between $4.90 to $5.00

Royal Caribbean CEO Jason Liberty commented, "Our momentum continues! We met our financial targets 18 months earlier than expected, have our balance sheet in a strong position, reinstated our dividend, and... we are just getting started."

Royal Caribbean analyst ratings and price targets are at MarketBeat. There are 16 analyst ratings on RCL stock, comprised of 14 Buys and two Holds, with a 12.17% upside to the consensus price target of $172.25.