Royal Caribbean Cruises Ltd. RCL is scheduled to release third-quarter 2024 results on Oct. 29, 2024.
The Zacks Consensus Estimate for RCL’s third-quarter earnings per share (EPS) is pegged at $5.04, suggesting 30.9% growth from $3.85 reported in the prior-year quarter. The consensus mark has increased by 1.2% in the past 60 days.
The consensus mark for third-quarter revenues is pegged at $4.86 billion, indicating growth of 16.8% from the year-ago quarter’s reported figure.
Royal Caribbean has an impressive earnings surprise history. RCL’s earnings outpaced the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 18.5%.
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Royal Caribbean Cruises Ltd. Price and EPS Surprise
Royal Caribbean Cruises Ltd. price-eps-surprise | Royal Caribbean Cruises Ltd. Quote
Q3 Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Royal Caribbean this time around. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat on earnings. But that's not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Royal Caribbean has an Earnings ESP of -0.87% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
What’s Shaping RCL’s Q3 Results?
Royal Caribbean’s third-quarter performance is likely to have benefited from robust demand and a solid booking and pricing environment across all key itineraries. This and continued strength in onboard spending, influenced by the pre-cruise commercial engine are likely to have driven the company’s top line in the third quarter.
Our model predicts third-quarter passenger ticket revenues to rise 12.4% year over year to $3.3 billion. We expect onboard and other revenues to increase 15.9% year over year to $1.4 billion.
Royal Caribbean's strategy of focusing on shorter cruises (seen as an entry point for first-time cruisers) is likely to have paid off in the third quarter. The company has initiated Investments in destinations like Perfect Day at CocoCay and enhanced ships for short cruises to attract new customers. During the previous quarter, RCL launched Utopia of the Seas — a new Oasis-class ship aimed at the Port Canaveral and Orlando markets — and reported exceptional demand, high customer satisfaction, and strong onboard revenue performance. Royal Caribbean expects these successes to increase customer retention and drive repeat business in the third quarter.
The solid performance of new and existing ships, combined with private destinations and accelerating commercial apparatus, are likely to have driven yields in the to-be-reported quarter.
The company anticipates net yields to rise 6.5-7% (on a reported and constant-currency basis) from 2023 levels. Our model predicts third-quarter net yields at $290.3 million (on a reported and constant-currency basis).
Elevated costs concerning fuel and food are likely to have hurt margins in the third quarter. Our model predicts total cruise operating costs to rise 7.2% year over year to $2.29 billion.
The company expects third-quarter net cruise costs (excluding fuel per APCD) to increase 3.3-3.8% (on a reported and constant currency) year over year. Per our model, third-quarter net cruise costs (excluding fuel per APCD) are estimated at $119.2 million (on a reported and constant-currency basis).
Price Performance & Valuation
Shares of Royal Caribbean have rallied 56.8% in the year-to-date period, outperforming the Zacks Leisure and Recreation Services industry and the S&P 500. RCL has also outpaced other industry players, including Carnival Corporation & plc CCL, up 12.8%, Norwegian Cruise Line Holdings Ltd. NCLH, up 15.9%, and OneSpaWorld Holdings Limited OSW, up 22.5%.
RCL’s YTD Performance
Image Source: Zacks Investment Research
From a valuation perspective, RCL is trading relatively cheap. The company has a forward 12-month price-to-earnings of 15.4X, below the industry average.
Image Source: Zacks Investment Research
Investment Considerations
RCL presents a strong case for investment as it continues on an upward trajectory, marked by robust demand for its renowned vacation experiences. The company achieved its ambitious "Trifecta" financial program 18 months ahead of schedule, showcasing its ability to drive triple-digit adjusted EBITDA per available passenger cruise day (APCD), double-digit adjusted earnings per share, and return on invested capital in the teens.
With its balance sheet in a strengthened position and leverage now below 3.5 times (excluding newly delivered ships), RCL has reinstated a quarterly dividend, a significant indicator of its financial health and commitment to returning value to shareholders. The company’s strategy focuses on moderate capacity and yield growth while maintaining strong cost discipline, aiming for a long-term competitive position in the broader $1.9 trillion vacation market.
RCL's global brand strength and innovative vacation products position it to attract a diverse and growing customer base, with a notable increase in younger customers and new-to-cruise passengers. The company has seen strong demand across its North American, Caribbean, European and Alaska markets, which has led to increased pricing power and double-digit yield growth for 2024.
New ship launches, such as the Utopia of the Seas and Silver Ray, along with successful private destinations like Perfect Day at CocoCay, have helped solidify RCL's market share. Additionally, its upcoming private destination projects, like the Royal Beach Club on Paradise Island and in Cozumel, are anticipated to differentiate RCL from land-based alternatives.
The Final Takeaway: Should You Buy?
Considering Royal Caribbean’s sustained momentum, robust demand, and significant financial progress, the stock presents a compelling opportunity for investors. With notable revenue and earnings growth projected for the third quarter of 2024, the company is well-positioned to deliver solid results, driven by innovative offerings, strategic private destinations, and an effective commercial strategy that boosts onboard spending and customer retention.
While elevated costs remain a factor, RCL’s focus on yield growth, disciplined cost management, and strategic expansions, coupled with its competitive valuation, make it an attractive option. Investors seeking to capitalize on Royal Caribbean’s continued upward trajectory and the potential post-earnings surge may consider adding RCL stock to their portfolios ahead of the company’s third-quarter results.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
