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Royal Caribbean Earnings Are More About the Forward Than the Aft

By Rick Munarriz – Oct 29, 2021 at 11:15AM

Key Points

  • Royal Caribbean missed Wall Street revenue and earnings expectations, but that's not a deal breaker.
  • Bookings are strong with demand for 2022 sailings within the historical range and at higher price points than 2019.
  • Royal Caribbean held up better than its peers through the pandemic as an investment. It seems ready to keep leading the way in the recovery.

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Look forward. Don't dwell in the aft err thoughts.

Enjoying a cruise is about enjoying what lies ahead instead of dwelling on what just happened. You want to metaphorically hang out near the forward end of the ship, looking ahead to the next port. It's a better place to be than the aft section as the past fades from view. It's probably also the right strategy to take in, considering the financial update out of Royal Caribbean (RCL 0.95%) on Friday morning.

The third quarter that ended in September was a dud by most measuring sticks. Revenue fell short of expectations. It was another massive loss. However, the future is considerably brighter with robust bookings and hope for a return to normalcy. Look forward. Don't dwell in the aft err thoughts.  

A cruise passenger looking out of the balcony.

Image source: Getty Images.

Aft punk

The nearly $457 million in revenue that Royal Caribbean just delivered for the third quarter is a welcome break from the negative (yes, negative) revenue that it posted for the same three months a year earlier. However, it's well short of the $567 million that analysts were targeting. It's also woefully below the $3.2 billion it recorded in the third quarter of 2019. 

Things don't look any better on the bottom line. The $4.40 a share in adjusted losses that Wall Street pros were modeling is pretty bleak, but Royal Caribbean's adjusted deficit of $4.91 a share is even worse. 

Don't read too much into the rough misses on both ends of the income statement. We saw the summer unravel in a sad stew of delta-variant coronavirus spikes, regulatory hurdles, and a Florida governor who turned from advocate to adversary when the industry began to embrace vaccination requirements and mask mandates. Most of the rosier analyst outlooks were made earlier in the summer and weren't adjusted to align with the lost season for the cruising industry. 

It was a given that Royal Caribbean's quarter was going to be a stinker. The real meat to the report would come in any informational nuggets it could provide in term of bookings. And on that front, Royal Caribbean came through like a glorious ice sculpture at a midnight buffet.

There were more future bookings in the third quarter than in the second quarter, and momentum improved as the period played out. September new bookings for next year's sailings were more than 60% higher than the monthly average for the second quarter. Sailings for 2022 are within historical ranges, and (perhaps even more importantly) at higher price points than in 2019. 

Things aren't perfect. Royal Caribbean points out that the further out you go into 2022 bookings, the more normalized the flow of incoming reservations becomes. Put another way, some cruise fans are still hesitant to book sailings that leave in the next couple of months. It's still encouraging to see that the table settings are there for Royal Caribbean to possibly serve up record results in the late-seating segment of 2022. 

The pandemic made Royal Caribbean and its peers load up on liquidity. It has access to $4.1 billion of liquidity including $3.3 billion in cash and cash equivalents. It's also ramping up its fleet, and by the end of this year it expects to have 50 of its 61 ships across all five of its brands back in service. 

It remains the class act among cruise line stocks. It was last year's best performer among the three publicly traded giants, and it's also leading the way in year-to-date gains in 2021. As long as it doesn't get tossed another curve ball in the way of a global health catastrophe or a worldwide economic meltdown, Royal Caribbean is looking ready to hit it out of the park in 2022.

Rick Munarriz 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.

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