Key Takeaways

  • Analysts estimate adjusted EPS of -$4.34 vs. -$6.13 in Q2 FY 2020.
  • Cabin occupancy is expected to be down YOY.
  • Revenue is expected to be lower compared to the year-ago quarter amid the ongoing COVID-19 pandemic.

Royal Caribbean Group (RCL), which owns and operates global cruise vacation brands Royal Caribbean International, Celebrity Cruises, and Silversea, has resumed U.S. operations this summer after the cruise industry was mostly sidelined over the past year due to the COVID-19 pandemic. But the faster-spreading Delta variant of the coronavirus has already prompted the company to expand its testing procedures for cruises departing from the U.S. Six passengers aboard one of Royal Caribbean's ships tested positive for COVID-19 last week, a reminder that risks remain.

Investors will be looking to see whether the cruise operator's top and bottom lines have begun to recover since it started selling tickets for cruises again when it reports its Q2 fiscal year (FY) 2021 earnings on August 4, 2021. Analysts expect the company's adjusted loss per share to narrow compared to the year-ago quarter. Revenues, meanwhile, are predicted to be higher than the past three quarters but still be down year-over-year (YOY).

Investors will also be focused on Royal Caribbean's occupancy rate, a measure of the amount of available passenger capacity, or cabins, being utilized. The occupancy rate has fallen due to the pandemic but is expected to rebound as health risks subside. Analysts expect the company's occupancy rate to be down considerably from the year-ago quarter, although higher than in the first quarter of FY 2021.

Shares of Royal Caribbean have outperformed the broader market over the past year. The stock's movements have been extremely volatile as investors have grappled with the enormous uncertainty concerning the return of cruise sailing and whether or not there will be enough demand from passengers wary of the potential health risks. After hitting a recent peak in early June, the stock has shed many of the gains made since mid-February. Still, Royal Caribbean's shares have provided a total return of 59.3% over the past year, well above the S&P 500's total return of 33.2%.

One Year Total Return for S&P 500 and Royal Caribbean
Source: TradingView.

Royal Caribbean Earnings History

The stock jumped briefly after the company beat analysts' expectations in its Q1 FY 2021 earnings report. Royal Caribbean posted a narrower loss per share than forecast for the first quarter. But it was the company's fifth straight quarter of adjusted losses per share and declining revenue, which fell 97.9% YOY. The company said that it had resumed limited cruise operations outside the U.S. after suspending its global operations on March 13, 2020. It noted that the suspension had been extended to most ships through June 30, 2021.

In Q4 FY 2020, Royal Caribbean reported a larger adjusted loss per share than analysts expected and revenue that missed consensus estimates. This marked the company's fourth straight quarterly adjusted loss per share and declining revenue. Revenue was down 98.6% compared to the year-ago quarter, with Royal Caribbean labeling the crisis brought on by the pandemic the most difficult in its history.

Analysts are expecting the cruise operator's financial struggles to continue in Q2 FY 2021. Royal Caribbean is expected to post its sixth straight adjusted loss per share. Revenue, meanwhile, is expected to fall 14.8%, continuing the streak of declines begun in the first quarter of FY 2020.

For full-year FY 2021, analysts are currently forecasting an annual adjusted loss per share of $13.46. This would be the second straight annual loss per share yet still mark an improvement on the adjusted loss per share of $18.31 recorded last year. Revenue, on the other hand, is expected to grow 7.9%. However, that rise does not make up for the 79.8% drop in annual revenue in FY 2020.

Royal Caribbean Key Stats
  Estimate for Q2 2021 (FY) Q2 2020 (FY) Q2 2019 (FY)
Adjusted Earnings Per Share ($) -4.34 -6.13 2.54
Revenue ($M) 149.5 175.6 2,806.6
Occupancy Rate (%) 49.0 84.5 108.5

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on Royal Caribbean's occupancy rate, which the company refers to simply as "occupancy." It is calculated by taking the number of passengers carried during the measurement period, multiplying that by the number of days of the passengers' respective cruises, then dividing by the available passenger capacity, as measured by available passenger cruise days (APCD).

The measure of capacity assumes double occupancy per cabin, which is why occupancy rates greater than 100% are possible—sometimes cabins are occupied by more than two passengers. The entire cruise industry has suffered from a decline in occupancy amid the pandemic. Occupancy is now expected to rebound as the health risks related to the coronavirus subside, although the spreading of the Delta variant could slow that recovery.

In each of the three years prior to the onset of the pandemic, Royal Caribbean consistently posted occupancy rates between 108-109%. In FY 2020, the rate fell to 101.9%. However, that seemingly high rate during a pandemic in which much of the cruise industry ground to a halt conceals the fact that the available passenger capacity, which is used to calculate the occupancy rate, was drastically reduced. In FY 2019, available capacity, as measured by APCD, was approximately 41.4 million. Then, in FY 2020, APCD fell to just 8.5 million. If the occupancy rate for FY 2020 was calculated using FY 2019's APCD, then the rate would be 21.0%.

In Q1 FY 2021, Royal Caribbean's occupancy rate fell to 37.7% amid drastic declines in the number of passengers and the number of days they were on cruises as well as the available capacity. Analysts expect the occupancy rate in Q2 FY 2021 to be down from the year-ago quarter but up from Q1.

For full-year FY 2021, the occupancy rate is expected to be 71.4%, which would be the lowest rate in at least the past five years. The lower occupancy rates expected this year compared to last suggest that passengers are not returning as quickly as available passenger capacity.