Royal Caribbean Raises Full-Year Guidance. Here’s What Investors Need to Know.

Royal Caribbean (NYSE:RCL) has been the top-performing stock in the cruise industry since the pandemic, thanks to consistently operating above normal capacity, strong onboard spending, and private destinations that have delivered high margins.

The stock is up nearly 1,000% from its post-pandemic bottom, and it just delivered another strong round of results for investors.

Royal Caribbean stock jumped 5.7% on Tuesday after the company topped estimates in its second-quarter earnings report and raised its guidance. Let’s take a closer look.

Image source: Getty Images.

Royal Caribbean impresses

Royal Caribbean said revenue was up 6% to $4.83 billion, which matched estimates, and its load factor, or occupancy, was 110% (100% occupancy is based on two occupants per room).

Royal Caribbean continues to find success with its higher-end, newer Icon class, and the company launched Legend of the Seas earlier in July, which is delivering “exceptional returns.”

Net yields, or price per customer, were up 1.9%, and capacity was up 5% for the year, driving the 6% increase in revenue. However, costs rose in line with revenue, and adjusted earnings per share fell from $4.38 to $4.21, due to a challenging political climate with the war in Iran and higher fuel costs.

That result still easily beat expectations at $3.98, showing Royal Caribbean delivered strong results in a difficult environment.

Investors seemed most excited about the company’s guidance as it lowered its full-year revenue guidance from 10% to 9%, but raised its adjusted EPS guidance to $17.73-$17.87, up from a previous range of $17.10-$17.50. That represents 14% year-over-year growth and a 23% compound annual growth rate (CAGR) over the first two years of its Perfecta program, which is targeting a 20% earnings CAGR from 2024 to 2027.

Perfecta is the company’s three-year financial performance initiative, with targets for adjusted EPS growth, a high-teens return on invested capital (ROIC), reducing financial leverage to below 3x, and reducing net carbon intensity by 15%.

To achieve that, the company is targeting moderate capacity and yield growth, and aggressive cost control. Geopolitical issues and higher fuel costs seem to have slowed the earnings growth in the second quarter. However, Royal Caribbean’s guidance indicates its growth and margin-expansion initiatives remain on track.

Is Royal Caribbean a buy?

While Royal Caribbean’s stock breakout growth has slowed over the last year, the company is still executing effectively and is on track to achieve those goals.

Demand for cruising remains robust, and CFO Naftali Holtz said as much, noting, “Consumer demand for our vacation experiences is strong, and guests continue to demonstrate a desire to spend on memorable experiences with us.”

Despite a modest, near-term impact on bookings in certain geographies from the Iran war, bookings are at record prices, booking volumes are up from a year ago, and load factors are robust as well.

Royal Caribbean now trades at a price-to-earnings ratio of 20. That looks like a great price for a company targeting 20% earnings growth over the next two years and with the proven track record of Royal Caribbean.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.