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Photo source: Royal Caribbean

Royal Caribbean's second-quarter summary
For the second quarter, adjusted net income of $147 million, which translated to 0.66 per share, was more than four times that of Q2 2013. This was helped by lowered costs in the quarter, higher yield, and more efficient operations. The company reported expected full-year earnings per share to be in the range of $3.40 to $3.50, a $0.10 increase from the midpoint of its previous guidance.

With Q2 net income up more than four times compared to the same period in 2013, investors should be feeling very happy with Royal Caribbean's performance so far this year. However, following this massive quarter, has the wave of profits come and gone, leaving investors who didn't buy in before this release on the beach? Maybe not.

Increased gains in Europe are one of the major reasons the company did so well in the most recent quarter, but there is one reason to continue being very bullish on this company more long term: Asian growth.

Double the fun
The most exciting part of Royal Caribbean going forward is the Double-Double Program, with goals of increasing return on invested capital (ROIC) to double digits and doubling 2014 EPS, both by 2017. "The Double-Double Program sets demanding but realistic targets, against which we will measure our continued progress," Royal Caribbean CEO Richard Fain was quoted as saying in the company press release.

Using the same operational efficiencies and cost-cutting techniques that grew profits this quarter, Royal Caribbean will pass even more of its revenues to the company's bottom line going forward. In the Q2 earnings, Royal Caribbean executives noted that even though Caribbean operations, the island cruises that initially made the company so profitable, have been down, growth in Europe and China helped to counteract lowered U.S. revenues. Going forward, the company is making big investments in Asia, which is how it is planning to drive that doubled ROIC. The biggest of these investments is that the company is committing its newest and best ship to the Chinese market.

Royal Caribbean's Quantum of the Seas. Source: Royal Caribbean.

The biggest thing to hit the sea
New cruise ships being deployed are creating exciting times for cruise companies as they get to show off the latest and greatest technology, design, and features that they hope will make their boat the most exciting one on the sea. Later this year, Royal Caribbean will be taking the lead with its soon-to-be-operating Quantum of the Sea.

Kristin Chenoweth stands in Northstar, the Quantum of the Sea's premier attraction that allows passengers to hover and rotate above the ship and ocean. Source: Royal Caribbean

This megasized ship boasts indoor skydiving, bumper cars, and a roller skating rink. The company's new Quantum spokesperson, Wicked: The Musical's Kristin Chenoweth, even shows off standing in a passenger holding area attached to an arm that extends from the top of the ship to give passengers a sky-high hovering view of passing landscapes.

Royal Caribbean plans for Asia to play a large part in its future growth -- so much so that this amazing Quantum of the Seas vessel is to be released and stationed in the Chinese market in 2015 after one initial New York season. This 4,180-passenger vessel will increase the company's Chinese capacity by 66%, added to the two 3,114-passenger ships already committed to the region. While other companies have often used ships that have finished careers in the Caribbean market and then transferred them into the Chinese market, Royal Caribbean is making a huge bet on this growing segment but committing this giant investment to the Chinese market.

A cruise line ship at port in Hong Kong. Source: Oceania/BBC.

Carnival sets sail in Asia, too
With an abundance of small, tropical islands in the South Pacific, much like in the Caribbean, as well as a growing Chinese middle class spending more and more on leisure travel, this seems to be a great investment for Royal Caribbean. But competitor Carnival Cruise Lines is not missing this opportunity either, expecting to get a large percentage of the estimated 7 million cruise passengers to come from Asia by 2020. Princess Cruises', a Chinese subsidiary of Carnival, CEO Alan Buckelew stated that, "The cruise vacation market is in its infancy in China, and therefore we see this region as one with exciting growth potential."  

A boatload of value?
Royal Caribbean and Carnival are both looking at the vast possibilities of expansion in Asia, particularly China. With these two companies both doing well in Q2, and similar opportunities for future expansion, which is the best bet now?

Even though Carnival posted an acceptable Q2, it was still not on the same level as Royal Caribbean. Furthermore, Royal Caribbean's plans for doubled ROIC and EPS in the next three years, which seems likely given its operational efficiency gains, and the new Quantum of the Seas coming later this year make it an even more exciting company. Following a rise from its great Q2 results, Royal Caribbean is now slightly more expensive than Carnival by current P/E, but it looks to be a good bet on future earnings at a current P/E multiple of 31.2, and an estimated future P/E of 13.2, compared to Carnival's 27.5 times and 15.4 times, respectively. With all of this, Royal Caribbean still looks to be a a great wave to ride to future profits.