The last two years haven't been much of a bon voyage for Royal Caribbean (RCL -2.11%), and the near-term outlook remains problematic. The cruise ship operator is announcing disappointing financial results for the fourth quarter, falling short of Wall Street forecasts and kicking the can on its timeline for a return to profitability.
"While the timing of Omicron was particularly unfortunate for the first half of 2022 bookings and will likely delay our return to profitability by a few months, we do not expect it to impact our overall recovery trajectory and the strong demand for cruising," CEO Jason Liberty said in Friday morning's earnings release.
The latest global surge in COVID-19 cases has naturally weighed on the travel industry, with cruise lines again taking the biggest hit. It's been a long way back for cruising since the initial shutdown 23 months ago. Royal Caribbean now expects an end to the red ink by the second half of this year, and while that is technically "a few months" since its last forecast, Royal Caribbean and the other leading publicly traded cruise lines haven't been profitable since 2019. Falling short of Wall Street targets and a delay in the return to profitability shouldn't really come as a surprise to investors.
Royal Caribbean is clocking in with $982.3 million in revenue for the final three months of the year. It's naturally a lot more than what it raked in a year earlier when its fleet was largely out of service, but well short of the more than $2.5 billion it generated in revenue for the fourth quarter of 2019.
The news is naturally even more grim at the other end of the income statement. Its net loss of $1.36 billion for the fourth quarter is essentially the same $1.37 billion deficit it posted a year earlier when it was generating negligible revenue. The loss is kinder on a per-share basis -- going from $6.09 to $5.33 -- but only because Royal Caribbean's weighted outstanding share count has risen by more than 13% over the past year.
The ultimate scorecard is how a company holds up relative to analyst estimates, and Royal Caribbean fell short on both fronts. Its adjusted loss of $4.78 a share was worse than the $3.92 a share that Wall Street pros were modeling. Revenue also missed the $1.04 billion that analysts were expecting.
A miss is rarely a good look, but no one should be surprised. Analyst consensus is often slow to adapt to the new normal, and omicron has been a contagious variant even for the vaccinated with devastating outcomes for the medically vulnerable and unvaccinated. It didn't help that the U.S. Centers for Disease Control and Prevention warned potential passengers over the holidays that even fully vaccinated folks should avoid cruise vacations. It also didn't help that all of the major cruise lines have had isolated outbreaks on some sailings, in some cases forcing an early end to a cruise and in even more rare cases nixing the next sailing.
Passenger cancellations and a drop in last-minute bookings shouldn't come as a surprise, but it's not all bad news for Royal Caribbean. It began this year with 50 of its 61 ships across its five brands back in service. Roughly a third of the cabins are still empty, but onboard spend per passenger has never been higher. Royal Caribbean also expects to return to profitability by the second half of this year, but we've naturally seen that goalpost get moved before.
"As long as it doesn't get tossed another curveball 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," I concluded after Royal Caribbean's upbeat third-quarter report three months ago.
Omicron was the curveball -- or was it a sinker? Royal Caribbean continues to be the best performer among the cruise line stocks in a very challenging climate. It's just going to need some more time before the seas get calm again for investors.