The central theses
- Analysts estimate adjusted earnings per share at $ -4.34 compared to $ -6.13 for the second quarter of FY2020.
- The cabin occupancy is expected to decrease compared to the previous year.
- In view of the ongoing COVID-19 pandemic, sales are expected to be lower compared to the same quarter of the previous year.
Royal Caribbean Group (RCL), which owns and operates global cruise brands Royal Caribbean International, Celebrity Cruises and Silversea, resumed US operations this summer after the cruise industry was largely sidelined last year due to the COVID-19 pandemic. But the faster spreading delta variant of the coronavirus has already prompted the company to expand its test procedures for cruises from the United States. Six passengers aboard one of Royal Caribbean’s ships tested positive for COVID-19 last week as a reminder that risks remain.
Investors will examine whether the cruise company’s revenue and earnings begin to recover since reselling cruise tickets when it reports its fiscal year in the second quarter (For your information) Result 2021 on August 4, 2021. Analysts expect the company’s adjusted loss per share to decrease year over year. Meanwhile, sales are expected to be higher than in the last three quarters, but still below the previous year’s value (YOY).
Investors will also focus on Royal Caribbean’s occupancy, a measure of the amount of available passenger capacity, or cabins, that are being used. Utilization has decreased due to the pandemic but is expected to recover as health risks subside. Analysts expect the company’s occupancy rate to decline significantly year-on-year, albeit higher than in the first quarter of FY 2021.
Royal Caribbean stocks have outperformed the broader market over the past year. The stock’s movements have been extremely volatile as investors grapple with the tremendous uncertainty surrounding the return of the cruise ship and whether there will be enough demand from passengers to be wary of potential health risks. After hitting a recent high in early June, the stock lost much of the gains it had made since mid-February. Still, Royal Caribbean stocks posted a total return of 59.3% last year, well above the S&P 500’s total return of 33.2%.
Royal Caribbean win history
The stock rose shortly after the company beat analysts’ expectations in its earnings report for the first quarter of fiscal 2021. Royal Caribbean posted lower loss per share than forecast for the first quarter. But it was the fifth straight quarter of adjusted losses per share and declining sales, down 97.9% year over year. The company said it resumed restricted cruise operations outside of the United States after ceasing global operations on March 13, 2020. It found that the suspension was extended to most ships through June 30, 2021.
In Q4 FY 2020, Royal Caribbean reported larger adjusted loss per share than analysts expected and revenue that fell short of consensus estimates. This marked the fourth straight quarterly adjusted loss per share and declining revenue. Revenue declined 98.6% year over year, with Royal Caribbean calling the pandemic-triggered crisis the most difficult in its history.
Analysts expect the cruise company’s financial troubles to persist into the second quarter of fiscal 2021. Royal Caribbean is expected to record its sixth consecutive adjusted loss per share. Meanwhile, sales are expected to decline by 14.8%, continuing the series of declines that began in the first quarter of FY 2020.
For the full year FY 2021, analysts are currently forecasting an adjusted annual loss per share of USD 13.46. That would be the second straight annual loss per share, but still an improvement over the adjusted loss per share of $ 18.31 recorded last year. In contrast, sales are expected to grow by 7.9%. However, this increase does not offset the decline in annual sales of 79.8% in FY 2020.
|Royal Caribbean Key Statistics|
|Estimate for Q2 2021 (GJ)||2nd quarter 2020 (GJ)||2nd quarter 2019 (GJ)|
|Adjusted earnings per share ($)||-4.34||-6.13||2.54|
|Revenue ($ million)||149.5||175.6||2,806.6|
|Occupancy rate (%)||49.0||84.5||108.5|
Source: Visible alpha
The key metric
As mentioned earlier, investors will also be focusing on Royal Caribbean occupancy, which the company simply calls “occupancy.” It is calculated by multiplying the number of passengers carried during the measurement period by the number of days of the passengers’ respective cruises and then dividing it by the available passenger capacity as measured by the available passenger cruise days (APCD).
The capacity dimension assumes double occupancy per cabin, which is why occupancy rates of more than 100% are possible – sometimes cabins are occupied by more than two passengers. The entire cruise industry is suffering from a drop in occupancy amid the pandemic. Occupancy is now expected to recover as coronavirus-related health risks subside, although the spread of the Delta variant could slow that recovery.
For each of the three years leading up to the pandemic, Royal Caribbean consistently recorded occupancy rates between 108 and 109%. In FY 2020 the rate fell to 101.9%. However, this seemingly high rate during a pandemic that paralyzed much of the cruise industry hides the fact that the available passenger capacity, which is used to calculate the load factor, has been drastically reduced. In FY 2019, the available capacity, measured by APCD, was around 41.4 million. Then, in FY 2020, the APCD dropped to just 8.5 million. If the Fiscal 2020 Utilization Rate was calculated using the Fiscal 2019 APCD, the rate would be 21.0%.
In the first quarter of FY 2021, Royal Caribbean’s load factor fell to 37.7% as the number of passengers and the number of days they spent on cruises, as well as available capacity, dropped dramatically. Analysts assume that the occupancy rate in the second quarter of FY 2021 will be below the same quarter of the previous year, but above the first quarter.
For the full year FY 2021, an occupancy rate of 71.4% is expected, which would be the lowest value in at least five years. The lower occupancy rates expected for this year compared to the previous year suggest that passengers will not return as quickly as the available passenger capacities.