Royal Caribbean Reports Strong Results, But Investors See Concerns

As another demonstration of the booming cruise industry, Royal Caribbean Group reported what appeared to be strong results and a positive outlook. Investors, however, detected a few elements that raised concerns that issues ranging from economic uncertainties, tariffs, global conflicts, and more might be starting to take a toll on travelers, in addition to the already shifting preferences.

The cruise corporation provided a rosy picture, saying its occupancy was at 110 percent in the quarter and at strong pricing. Earnings for the quarter came in ahead of consensus expectations, and it said bookings remain strong going forward. 

Bookings, it noted, have accelerated over the past three months, particularly for close-in sailings, which it said led to the second quarter outperformance. With demand remaining strong, the company also raised its earnings forecast for the full year.

Investors, however, found little joy as they dug into the numbers, and they punished the company. The stock price was off by more than 7 percent in the morning. It clawed back to a 5 percent decline for the day, or a stock price down $17.63 to close at just over $334. It is off by more than 6 percent from its 52-week-high.

All of this came despite the company emphasizing that capacity for the second quarter was up 5.8 percent year over year and that it delivered memorable vacations to 2.3 million guests, a 10 percent increase year over year, at high guest satisfaction scores. It also reported that capacity in the current quarter is expected to increase 2.9 percent compared to the third quarter of 2024, driven by the introduction of the massive new ship Star of the Seas (250,000 gross tons) in mid-August.

Investors heard the comments from the CEO, Jason Liberty, who said that traveler preferences were changing. He said three-quarters of their consumers reported they expected to level off their spending on vacation in the next 12 months. Also, he revealed that more than half of consumers are booking closer to the departure date and that the majority of people intending to travel in the next 12 months have not yet booked. 

Sometimes, the last-minute bookings are positive as travelers must pay higher prices for the limited availability. However, Royal also said it was running promotions to fill space before sailings. Its premium brand, Celebrity Cruises, for example, is running a summer sale. The company also has its luxury brand, Silversea Cruises, and reported a strong performance from its German joint venture with TUI Cruises.

Investors noted that the current quarter’s revenues were slightly below forecast, with the company confirming the strong financial results included better-than-expected costs. One analyst noted that this was the fourth quarter where top-line results were below forecasts. This quarter, passenger ticket revenue per passenger cruise day was slightly below consensus, as well as onboard and other revenue. 

Other financial statistics caught investors' attention, including the closely watched net yield (a measure of revenues net of the most significant variable costs) was forecast significantly below expectations for the third quarter, but Royal said it has a headwind as the new ship enters service. Analysts also noted that the implied fourth quarter earnings were slightly below consensus.

The company counters that "The strong demand we are seeing across our new ships and land-based destinations reinforces that our strategy is working and resonating with today's traveler," said Liberty. "As consumer preferences continue to evolve - toward more frequent vacations, closer-in vacation planning, and a greater focus on meaningful, experience-driven travel - our experiences are designed to meet these evolving expectations.”

Royal Caribbean has two new ships coming this year, Star of the Seas and Celebrity Xcel, and an orderbook for more of the world’s largest Icon class ships, another Oasis class ship, and another large Celebrity cruise ship. At the same time, it is investing in new private destinations ranging from a beach club in the Bahamas to a new private port in Mexico.

Analyst C. Patrick Scholes of Truist Securities summed up today’s reaction, titling his report “Decent but not Amazing as 2Q ahead but 3Q and (implied) 4Q light.”