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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, reported 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, as being behind the beat.
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 surged 7.8% higher ahead of the open Thursday.
This is breaking news. Read a preview of Royal Caribbean’s earnings below and check back for more analysis soon.
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 soared 106%,
Carnival
Corp
oration (CCL) has climbed 117%, and
Norwegian Cruise Line Holdings
(NCLH) is up 66% as of Tuesday’s close.
Other travel stocks, including domestically focused U.S. airlines, face signs of a slowdown in consumer spending. 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.
Analysts are expecting earnings per share (EPS) of $1.57 on revenue of $3.4 billion in the second quarter, according to FactSet estimates. That’s up from a loss of $2.08 per share on revenue of $2.18 billion in the same period last year.
Focus will quickly turn to guidance for the third quarter, typically the best three months for cruise operators. Analysts are forecasting EPS of $2.87 on revenue of $3.8 billion in the September quarter. For the full-year they expect earnings of $4.75 per share—toward the upper end of the company’s $4.40 to $4.80 guidance range.
U.S. airlines, such as
Alaska Air
(ALK) and
American Airlines
(AAL), have shown record quarters aren’t enough this earnings season. Royal Caribbean is at a different stage of recovery, but the stock’s recent rise means it also needs more than a bumper quarter.
A guidance hike, or strong commentary around bookings and pricing may be just the ticket—but the bar is going to be high.
Write to Callum Keown at callum.keown@barrons.com