Royal Caribbean Group’s shares fell more than any other shipping company on Thursday after it issued an earnings report that seemed to hit all the right notes.
The cruise giant beat analyst expectations for the second quarter, lifted its guidance for 2024 earnings and even announced its first dividend in more than four years.
But its shares fell 7.6% to just over $152 at the closing bell after investors focused their concern on one data point: net yield, a measure of profitability per passenger per day.
The slump represented more than $3bn in market capitalisation, although Royal Caribbean’s stock price growth has been so strong this year that, not long ago, Thursday’s price would have been a record.
While the New York-listed company increased its guidance for adjusted earnings per share (EPS), it forecast 10.4% to 10.9% net yield growth for 2024.
That is even better than the prediction made during its last earnings report, when it said it expected 9% to 10% for the year.
But Stifel analyst Steven Wieczynski said in a conference call that investors were concerned that the figure had embedded in it about 5% yield growth for the fourth quarter, which suggests a decline from the third quarter.
Quizzing Royal Caribbean executives in a conference call, he said investors worried that this could suggest bookings are slowing, though he expected that is more a function of ships that are already fully loaded.
Chief executive Jason Liberty noted that yields have been up significantly since 2019, before the industry was placed on hiatus because of the Covid-19 pandemic.
“The back half of the year, our yields are up 25% versus 2019,” he said. “And so I think our commentary of strength and how we feel about the back half of the year, I think, is still very bullish.”
He said Royal Caribbean is ahead of the curve in terms of pandemic recovery, and ships’ load factors, or occupancy, have normalised for the second half of 2024.
Liberty added that yield improvements predicted for the rest of the year are driven by pricing strength.
Royal Caribbean Group’s income statement for the second quarter and first half.
| Q2 2024 | Q2 2023 | 1H 2024 | 1H 2023 | |
| Revenue | $4.11bn | $3.52bn | $7.84bn | $6.41bn |
| Cruise operating expenses | $2.15bn | $1.96bn | $4.21bn | $3.75bn |
| Operating income | $1.1bn | $771m | $1.85bn | $1.04bn |
| Net income attributable to Royal Caribbean Group | $854m | $459m | $1.21bn | $411m |
“And so I think it’s a really strong indication that not only the willingness to pay more, but these prices continue to increase as we build and manage demand,” he said.
As TradeWinds reported earlier on Thursday, Royal Caribbean’s adjusted EPS of $3.11 in the second quarter was well above the $2.75 average estimate of 16 analysts polled by Yahoo Finance.
The company now expects to deliver $11.35 to $11.45 in adjusted EPS for 2024, which is up from a guidance range of $10.70 to $10.90 in its previous quarterly report.
And it announced its first post-pandemic dividend, $0.40 per share.
Liberty said in the earnings call that, with load factors back to normal levels, the company is making more bookings for 2025 than it is for this year.
And pricing is continuing to strengthen.
“So we feel very good. We’re in a very strong book position for 2025, pricing is up and increasing are the trends that we continue to see,” he said.
As for yield growth, Liberty said the fourth-quarter expectations are at the top end of the 3% to 5% that he described as the moderate yield growth that represents the “formula of success” for Royal Caribbean.
“If we’re growing our yields moderately, controlling our cost, growing our business in a disciplined way, what you see is significant margin accretion, significant return profile and continued step change, a significant step change, in our earnings profile,” he said.
