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Royal Caribbean Tells Investors to Expect Another Record Year

By Demitri Kalogeropoulos - Feb 10, 2020 at 12:00PM

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Despite coronavirus fears, the cruise ship giant sees many reasons for optimism heading into 2020.

It is full steam ahead for Royal Caribbean (RCL -6.76%). The cruise ship giant this past week announced positive fiscal fourth-quarter earnings results as it closed its 10th consecutive year of sales gains. While the unpredictable impact of the coronavirus was on investors' minds, the recent operating trends and the company's outlook for the next few quarters all point to another record year ahead.

CEO Richard Fain and his executive team discussed that outlook, including the potential for more market share gains, in a conference call with investors. Let's look at some highlights from that presentation.

A cruise ship at sea.

Image source: Getty Images.

The growth drivers

Strong demand from our core products for our key markets and higher pricing related to our private destinations in the Bahamas drove the overall outperformance for the year.
-- CFO Jason Liberty

Royal Caribbean dealt with several surprise challenges during the year, including Hurricane Dorian, the most disruptive storm system to ever affect the business. Yet the company still surpassed its initial growth outlook for 2019 and for the fiscal fourth quarter, with net revenue yields landing at 8% compared with a near flat result for rival Carnival (CCL -6.93%).

Part of that success came from the consolidation of the Silversea brand, but Royal Caribbean also got important contributions from organic growth in its core Caribbean sailings. The new Perfect Day resort destination was a standout that lifted demand and pricing for cruises featuring a stop at that exclusive getaway.

What we don't know

We also expect that there will be an impact on future bookings in China, especially in the immediate aftermath of the illness. But again, we just don't know.
-- Fain

Management kicked off the earnings call with comments about the coronavirus outbreak and the early impact on the business. China is home to one of Royal Caribbean's ships and is scheduled to get two more vessels in 2020. It accounts for roughly 6% of annual global capacity, so canceled voyages there will have a significant (but not crucial) effect on sales and profits.

Fain said it's still too early to tell how the outbreak will affect the business beyond the current expectations of roughly $0.25 per share in forgone earnings from the recent cruise cancellations. "There are still too many variables and uncertainties to calculate the overall impact on the business," he said.

Another record ahead

As always, there are some areas that do better than others in some special circumstances. For example, the bushfires in Australia. But overall, our [2020] forecast was for a nice bump to our already excellent 2019 yields.
-- Fain

Strong booking volume and pricing trends outside of China are still running strong, and Royal Caribbean has several growth drivers in place for 2020, including new ship launches, remodels to the existing fleet, and additional Perfect Day destinations to promote. Guest satisfaction is at an all-time high, executives said, which adds more confidence to the short-term operating outlook that predicts net yields between 2.25% and 4.25%.

Looking further out, the company is hoping to roughly double annual earnings per share by 2025. It's a safe bet that the cruising industry will face volatility over that period, but Royal Caribbean's ability to sail through the challenges of 2019 is a good sign of the durability of this consumer discretionary business.

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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
$59.60 (-6.76%) $-4.32
Carnival Corporation Stock Quote
Carnival Corporation
$13.84 (-6.93%) $-1.03

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