Royal Caribbean’s Q2 revenue growth fail to impress Wall Street’s lofty expectations

Shares of Royal Caribbean Cruises (NYSE:RCL) are under pressure in Tuesday’s premarket, as a miss on Q3 profit estimates and Wall Street’s lofty revenue expectations for the second quarter overshadowed better-than-expected profitability and upgraded guidance for the year.

“Demand for our portfolio of brands and our industry-leading experiences continues to accelerate,” Royal Caribbean CEO Jason Liberty said, adding that the company is “well on its way” to achieving its Perfecta financial targets by the end of 2027.

Led by a 10.5% increase in revenue, the cruise operator’s profits swelled by 36% to $4.38 per share. While profits exceeded expectations by $0.30, the double-digit growth in revenue was still $10M less than Wall Street anticipated.

Other metrics were equally upbeat as load factor in Q2 reached 110% on the addition of new ships which can carry increased loads, while cruise costs per available passenger cruise days (APCD) were up just 0.8%. Net cruise costs excluding fuel per APCD increased 2.5%.

Capacity during the quarter was up 5.8% year-over-year as the number of passengers increased 10% to 2.3M. Gross margin yields increased 11.0% and net yields increased 5.3% led by higher ticket pricing and onboard spending by passengers.

Looking ahead to the full year, Royal Caribbean (NYSE:RCL) expects to earn an increased profit of $15.41 to $15.55 per share, up 31% from FY24 and raised from prior guidance of $14.55 to $15.55 per share. The revised guidance compares to the consensus estimate of $15.46.

Bookings for FY25 are in line with prior years and at higher rates for both 2025 and 2026, led by “exceptionally well” digital channels for both bookings and pre-cruise purchases.

With Star of the Seas set to launch in mid-August, the company expects Q3 capacity to increase 2.9% year-over-year. Net yields are expected to increase 2.3% to 2.8% led by higher ticket prices and onboard spending.

This will likely result in Q3 profit to be between $5.55 and $5.65 per share, less than the consensus estimate of $5.84.

With Royal Caribbean (NYSE:RCL) down 5% ahead of Tuesday’s open, shares of Norwegian Cruise Lines (NCLH) and Carnival Corp (CCL) are trading lower in sympathy.