Weak Fourth-Quarter Outlook Sinks Royal Caribbean’s 2022, but Promising Long-Term Plan Buoys Shares

No-moat Royal Caribbean posted its first profitable quarter since the start of the pandemic, generating third-quarter revenue of $3 billion and adjusted EPS of $0.26. While sales were close to the $3.2 billion generated in the third quarter of 2019, profitability remains at a fraction of previous levels, given elevated levels of debt service and dislocated expenses from the restart. Third-quarter momentum was offset by a weak outlook for the seasonally small fourth quarter, as Royal expects just $2.6 billion in sales and a $1.30-$1.50 EPS loss, below our $2.9 billion and $0.11 loss projections, respectively. This is still a marked improvement over 2021’s fourth quarter, when Royal delivered less than $1 billion in revenue and a nearly $5 adjusted EPS loss. Sentiment remains promising, as 2023 bookings doubled during the third quarter sequentially and remain above prepandemic levels. Cruise appetite was also evidenced by $3.8 billion in customer deposits, $400 million above the third quarter of 2019.