Earnings Call Insights: Royal Caribbean Cruises Ltd. (RCL) Q3 2025
Management View
- Jason Liberty, President, CEO & Chairman of the Board, highlighted strong momentum with “accelerated demand, growing loyalty and all-time high guest satisfaction,” stating that “third quarter results exceeded our expectations, driven primarily by strong close-in demand for our vacation offerings and lower costs.” He announced the launch of Royal Beach Club, Santorini, expanding the exclusive destination portfolio and projecting an increase from 2 to 8 exclusive land-based destinations by 2028. Liberty described these as “thoughtful, sustained investment behind our commercial flywheel and reinforce the strength of our vacation platform.”
- Liberty stressed the company’s focus on leveraging technology and AI to enhance the guest journey and deepen engagement, noting that “in the third quarter, e-commerce visits and conversion rates both increased double digits versus last year, marking a very strong improvement for these channels.”
- The CEO pointed to the introduction of Points Choice, allowing guests to apply loyalty points to any Royal Caribbean Group brand, set to launch in early 2026, as an initiative to deepen loyalty.
- Liberty stated, “Full year adjusted earnings per share is now expected to be in the range of $15.58 to $15.63, a 32% year-over-year growth.” He also said, “We remain on track to achieve our Perfecta targets by 2027, a 20% compound annual growth rate and adjusted earnings per share and return on invested capital in the high teens.”
- Naftali Holtz, Chief Financial Officer, reported “net yields grew 2.4% in constant currency compared to the third quarter of last year,” and described “adjusted earnings per share were $5.75 and 11% higher than last year and 3% higher than the midpoint of our guidance.”
Outlook
- Liberty projected that “our capacity in the fourth quarter is up 10% year-over-year, and we expect to grow yields 2.2% to 2.7% on top of a 7% yield increase in the same quarter last year.”
- He outlined a full-year net yield growth expectation of 3.5% to 4% and full-year adjusted EPS guidance of $15.58 to $15.63.
- Holtz stated, “We also expect 18% growth in adjusted EBITDA to just above $7 billion and 290 basis points growth in adjusted EBITDA margin.”
- For 2026, Liberty indicated, “we anticipate earnings in 2026 to have a $17 handle on it.”
- Holtz added, “2026 capacity is expected to be up 6% and as we introduce Legend of the Seas in Europe this summer as well as benefit from a full year of Star and Xcel.”
Financial Results
- Capacity increased 3% in the quarter, delivering nearly 2.5 million vacations, a 7% increase year-over-year.
- Net yields grew 2.4% and adjusted gross EBITDA margin was 44.6%.
- Operating cash flow was $1.5 billion for the quarter.
- Holtz noted, “NCC, excluding fuel, increased 4.3% in constant currency, 195 basis points lower than our guidance.”
- Caribbean capacity was up 6% for the year and 10% in the fourth quarter, with Caribbean yields expected to be up 37% compared to Q4 2019.
- The company ended the quarter with $6.8 billion in liquidity and adjusted leverage below 3x on an LTM basis.
- The Board authorized a 30% increase to the quarterly dividend to $1 per common share, and $1.6 billion of capital was returned to shareholders since July 2024.
Q&A
- Steven Wieczynski, Stifel: Asked about 2026 guidance and cost management. Liberty responded, “If you take moderate yield growth, you take good cost control or as Naf used the term anemic…that leads you to sizable earnings per share growth, ROIC growth, et cetera.”
- Robin Farley, UBS: Sought clarification on “anemic” cost growth and bookings. Holtz explained, “my comments are on the total cost growth for next year,” and Liberty confirmed “the anemic comment includes the structural costs.”
- Matthew Boss, JPMorgan: Inquired about global demand progression and new customer acquisition. Liberty noted, “our technology, our AI tools are getting smarter and smarter so that we’re able to curate what is relevant to that consumer.”
- Elizabeth Dove, Goldman Sachs: Asked about Caribbean supply. Liberty said, “it’s been a little bit more promotional in the Caribbean activities. But for us…we’re able to not only manage that demand, but…see our guests pay up.”
- Brandt Montour, Barclays: Questioned yield growth for Q4. Holtz confirmed, “your math is directionally correct…when you take kind of a more normalized new hardware and like-for-like, you’re definitely in the ZIP code.”
- James Hardiman, Citi: Asked about puts and takes for 2026 earnings. Liberty stated, “the consumer or our guests is strong…we expect moderate yield growth for next year.”
- Benjamin Chaiken asked about River cruise investment. Liberty replied, “First and foremost, what you want to do is you want to make sure that you get the product right…we do expect to be a substantial vacation player in the River business.”
Sentiment Analysis
- Analysts focused on guidance clarity for 2026, cost growth, and yield sustainability. The tone was neutral to slightly positive, with several probing questions about structural costs and demand patterns.
- Management’s tone throughout prepared remarks was confident, with Liberty stating, “We feel really good about the book position, the rates that we’re booking at provide us a lot of rate room and opportunity for next year.”
- In the Q&A, the management tone remained confident but became more detailed and occasionally defensive, clarifying cost and demand assumptions.
- Compared to the previous quarter, the sentiment was equally confident but more focused on managing investor expectations for 2026 and beyond.
Quarter-over-Quarter Comparison
- Guidance for adjusted EPS was raised again, now $15.58 to $15.63, up from $15.41 to $15.55 in Q2.
- Net yields grew 2.4% in Q3, compared to 5.2% in Q2, indicating a deceleration but consistent with guidance.
- The company is now projecting a $17 handle for 2026 EPS, a new element vs. Q2.
- The strategic focus remains on expanding exclusive destinations and digital engagement, with increased investment in AI and technology highlighted more in Q3.
- Analysts in both quarters asked about yield sustainability, cost controls, and capacity deployment, but Q3 included more forward-looking questions about 2026 and specific cost headwinds.
- Management’s confidence in meeting and potentially exceeding financial targets was reinforced, but with more explicit mention of potential headwinds such as fuel costs and global minimum tax for 2026.
Risks and Concerns
- Adverse weather and the unplanned extension of the temporary closure of Labadee were cited as headwinds impacting Q4 outlook.
- Holtz mentioned, “the $0.12 increase compared to our prior guidance is driven by Q3 outperformance, $0.02 of better Q4 performance, offsetting a $0.05 impact from recent adverse weather events and the unplanned extension of the closure of Labadee.”
- Fuel costs and global minimum tax policy updates in 2026 were noted as expected headwinds.
- Analysts raised concerns regarding Caribbean capacity supply and yield growth, but management stated demand remains strong and manageable.
Final Takeaway
Royal Caribbean Cruises Ltd. emphasized strong demand, disciplined cost management, and strategic investments in exclusive destinations and digital capabilities. Management expects full-year 2025 adjusted EPS of $15.58 to $15.63 and signaled a $17 handle for 2026 EPS, supported by expansion in both capacity and high-margin products. The company remains confident in its ability to deliver significant earnings growth and long-term shareholder value while navigating near-term operational and macroeconomic challenges.