Its stock underperformed the market last year, right along with rival Carnival Cruise Lines (CCL 3.57%), but Royal Caribbean's (RCL 3.55%) business was a different story entirely. In fact, the industry's second-place cruise giant capitalized on strong demand and rising prices to achieve head-turning earnings growth in 2018.
Thanks to some of the metrics outlined below, combined with long-term shifts in demographics and consumer spending priorities, CEO Richard Fain and his team are just as optimistic about their long-term opportunities -- and for fiscal 2019 in particular.
Let's take a closer look at the record results, by the numbers:
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25%: Unadjusted earnings growth
Reported earnings rose at a healthy 14% clip to easily pass management's target for double-digit annual profit growth. Fain explained in a conference call with investors that this figure would have been 25% without the negative impact of foreign currency exchange and fuel cost shifts.
That success stands in contrast with the stock's 18% decline last year. The point wasn't lost on Fain, who said the earnings growth "should encourage those [investors] who watch on the sidelines concerned about weather, politics, trade wars, supplies, whatever."
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4.4%: Net yield
Net yield, a key industry growth metric that also describes pricing power, grew 4.4% to blow past the initial target range management had set of between 1.5% and 3.5%. This boost included a 6.8% spike in the fourth quarter that was powered by rising ticket prices, higher onboard spending, and the addition of its new luxury Silversea ship.
109%: Occupancy rate
Royal Caribbean's occupancy level ticked up for the third straight year, rising to 109% from 108%. The rate can reach over 100% since it is based on double-occupancy rooms that can accommodate as many as three people. The gains here are good news for revenue since they combine with higher capacity and increased spending to send sales higher. Fully booked cruises allow for higher ticket prices and robust profitability, too.
6.1 million: Passengers carried
The company crossed the 6 million mark for passengers serviced through the year. That leaves it well behind industry leader Carnival, which carried 11.5 million people, or about half of total cruise trips by any cruise operator in 2018. But the metric constitutes solid growth of almost 6% for Royal Caribbean thanks to the combination of increased capacity and higher occupancy.
$3.5 billion: Operating cash flow
Royal Caribbean generated $3.5 billion of cash from the business, up from $2.9 billion a year ago. That success has allowed management to make deliberate but aggressive bets on boosting capacity by adding ships to the fleet. The company is also spending heavily in 2019 on a new terminal in Miami and major upgrades to its CocoCay property in the Bahamas.
These cash outlays are well supported by rising demand, as the start of the peak booking season just set back-to-back record weeks in terms of both volume and pricing. Overall, Fain and his team see net yields rising by between 6.5% and 8.5% in 2019, while costs outpace that result thanks to the timing of big spending projects. Earnings should rise by double-digits to between $9.75 per share and $10 per share, they predict.
Looking further out, Royal Caribbean and the wider industry have bright futures ahead given support from favorable demographic shifts and changes in spending patterns toward experiences over objects. These trends should allow the cruise sector to meaningfully expand beyond the roughly 3% penetration rate among U.S. adults in 2018. Royal Caribbean is doing what it can to ensure it has the right ships and services in place to capitalize on that growth -- and steer it higher -- over the long term.
