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Royal Caribbean posts strong Q2 FY2025 results with margin expansion, raised guidance, and continued growth momentum driven by robust demand and disciplined cost control.

# Royal Caribbean Delivers Robust Q2 FY2025 Beat: Margin Expansion and Upbeat Guidance Signal Sustained Growth

---

## Executive Summary

- **Royal Caribbean (RCL) delivered a standout Q2 FY2025, beating on both revenue and EPS.** Revenue reached **$4.538B** (up **10.4% YoY**), and diluted EPS came in at **$4.41**, surpassing consensus by **$0.32**. The quarter’s strength was underpinned by **record load factors (110.3%)**, robust onboard and pre-cruise spending, and improved pricing.
- **Earnings quality was high, with notable margin expansion.** Operating margin rose to **29.3%** (up **2.6 pts YoY**), and adjusted EBITDA margin hit **40.8%** (up **3.0 pts**). Cost control was a highlight, as NCC ex-fuel per APCD increased just **2.5% YoY**, outperforming expectations by 180 bps.
- **Management struck a bullish tone, raising full-year EPS guidance to $15.41–$15.55** (approx. **31% YoY growth**) and net yield growth to 3.5–4%. The “Perfecta” plan targets **20% EPS CAGR and high-teens ROIC by 2027**, supported by new ship launches and private destination investments.
- **Risks include potential cost escalation in H2 FY2025** due to expense timing, as well as macro/geopolitical uncertainties. However, **liquidity remains strong at $7.1B**, and credit terms have improved, providing flexibility for further growth.
- **Catalyst watch:** Upcoming ship launches, further updates on the “Perfecta” plan, and Q3 booking trends will be key for sustaining momentum.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $4.538B    | $4.41B    | +$0.13B  | +10.4%     |
| Diluted EPS           | $4.41      | $4.09     | +$0.32   | +~31%      |
| Operating Margin      | 29.3%      | —         | —        | +2.6 pts   |
| Adjusted EBITDA Margin| 40.8%      | —         | —        | +3.0 pts   |
| Load Factor           | 110.3%     | —         | —        | +2.1 pts   |
| NCC ex-fuel per APCD  | +2.5% YoY  | +4.3% YoY | -1.8 pts | —          |

---

## Earnings Quality

Royal Caribbean’s Q2 FY2025 results reflect **broad-based revenue growth** across ticket and onboard segments, with **margin expansion driven by both pricing power and cost discipline**. The company’s ability to limit cost growth (NCC ex-fuel per APCD up just 2.5% YoY) while growing revenue at a double-digit pace demonstrates **operational leverage**. The improvement in both operating and EBITDA margins signals that profitability is not being sacrificed for growth.

---

## Management Commentary & Guidance

Management’s tone was **decisively bullish**, emphasizing **sustained demand, successful new ship launches, and a focus on driving higher onboard spend**. The company raised its full-year EPS guidance to **$15.41–$15.55** and net yield growth to **3.5–4%**, both above prior expectations. The “Perfecta” plan, targeting **20% EPS CAGR and high-teens ROIC by 2027**, was reiterated, with management citing strong booking trends and strategic investments in new private destinations as key growth drivers.

---

## Key Risks

- **Cost inflation:** Some cost increases may shift into H2 FY2025, potentially pressuring margins if not offset by revenue growth.
- **Macro/regulatory risks:** Geopolitical events, health-related disruptions, or regulatory changes could impact demand or operating costs.
- **Demand normalization:** While current demand is robust, any signs of consumer pullback or overcapacity could challenge pricing power.

---

## Expected Market Reaction

Analyst and investor sentiment is expected to remain **positive**, given the strong EPS beat, raised guidance, and visible margin expansion. The stock may see **short-term volatility** due to technical factors (overbought signals, options activity), but the **fundamental outlook remains constructive**. The market may not yet fully appreciate the company’s improved cost structure and long-term growth trajectory.

---

## Final Takeaway

**Royal Caribbean’s Q2 FY2025 was a strong quarter, marked by sustainable revenue growth, margin expansion, and confident forward guidance.** The market may be underestimating the durability of cost control and the upside from new ships and private destinations. **Key upcoming catalysts** include further ship launches, updates on the “Perfecta” plan, and Q3 booking trends. Investors should monitor for any signs of cost escalation or demand normalization, but the long-term outlook remains robust.

Royal Caribbean (RCL): Margin Expansion Drives Upbeat Outlook

Royal Caribbean (RCL) is set for continued revenue and margin growth in Q2 2025, driven by strong demand, capacity expansion, and digital/AI yield management, with upside potential not fully reflected in consensus estimates.

# Royal Caribbean Cruises: Navigating Strong Demand and Digital Upside into Q2 2025

## Executive Summary

We maintain a **Bullish** outlook for Royal Caribbean Cruises Ltd. (RCL) heading into Q2 2025, driven by robust demand, capacity expansion, and accelerating digital initiatives. **Q1 2025 revenue grew 7.3% YoY to $4.0 billion**, with operating margin expanding to **23.6%**—momentum that is expected to continue as capacity rises another 6% in Q2. Management’s forward guidance for **Q2 adjusted EPS of $4.00–$4.10** signals confidence in both pricing power and cost discipline. The market may be underestimating the impact of **AI-driven yield management and a 15% YoY increase in customer deposits**, which together point to both liquidity strength and incremental margin upside.

## Recent Trends Signal What’s Next

Recent quarters have shown a clear acceleration in both top-line and margin performance. **Q1 2025 revenue reached $4.0 billion (+7.3% YoY)**, with **adjusted EBITDA margin at 35.1%** and **operating margin at 23.6%**. Passenger volume rose **9% YoY**, and load factors improved to **108.8%**. The Asia/Pacific segment posted a **23% YoY revenue uplift**, diversifying the revenue base. These trends suggest that Q2 will benefit from both higher capacity and sustained demand.

### Revenue, Margin, and EPS Trend Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q2 2024      | 3.65         | 32.0             | 20.5                 | 13.2          | 2.85    |
| Q3 2024      | 3.90         | 33.2             | 21.7                 | 14.0          | 3.25    |
| Q4 2024      | 3.95         | 34.0             | 22.1                 | 14.8          | 3.40    |
| Q1 2025      | 4.00         | 35.1             | 23.6                 | 15.5          | 3.75    |

**Trend:** Consistent revenue growth and margin expansion, with EPS rising each quarter.

## Management’s Forward Tone and Positioning

Management’s recent commentary reflects a **measured but confident tone**. In the Q1 2025 call, executives stated, “We are well positioned to deliver another record quarter, despite heightened uncertainty.” This contrasts with the more cautious language of prior quarters, where management emphasized “monitoring macro headwinds.” The current guidance for **Q2 adjusted EPS of $4.00–$4.10** and references to “robust demand” and “disciplined cost control” indicate a shift toward greater optimism and assertiveness in execution.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q2 2025 are:

- **Passenger Volume:** Q1 saw **2.24 million passengers (+9% YoY)**, with booking trends indicating further growth.
- **Load Factor:** Improved to **108.8%** in Q1, up from 107.0% YoY.
- **Digital Bookings:** Digital channel bookings doubled YoY, and AI-driven yield management is now fully deployed.

### KPI Movement Table

| KPI                | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|--------------------|---------|---------|---------|------------|------------|
| Passenger Volume   | 2.05M   | 2.18M   | 2.24M   | +9%        | +2.8%      |
| Load Factor (%)    | 107.0   | 108.2   | 108.8   | +1.8 pts   | +0.6 pts   |
| Digital Bookings   | 1.0x    | 1.7x    | 2.0x    | +100%      | +18%       |

**Implication:** Sustained passenger and digital growth will likely drive both revenue and margin upside in Q2.

## Missed by the Street

A key overlooked signal is the **15% YoY increase in customer deposits**, which, combined with the rollout of AI-driven yield management, points to both strong forward demand and the potential for further margin expansion. As noted in the Q1 2025 10-Q: “AI-driven yield management in place across all brands.” This technology-driven approach to pricing and inventory is not yet fully reflected in consensus models, suggesting upside risk to both revenue and EPS.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                         |
|----------|--------------|---------|----------------------|---------------------------------------------------------|
| Bull     | 4.15         | 4.25    | 24.0                 | Capacity growth >6%, digital/AI yield outperformance    |
| Base     | 4.05         | 4.05    | 23.6                 | Steady capacity, moderate pricing, stable input costs   |
| Bear     | 3.95         | 3.90    | 22.8                 | FX volatility, input cost pressure, demand softening    |

**Most Likely:** The **Base case** is most probable, given current booking trends, management’s tone, and stable cost outlook. Upside exists if digital and AI initiatives deliver faster-than-expected yield improvements.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($B) | EPS ($) | Operating Margin (%) |
|--------------|--------------|---------|----------------------|
| Q2 2024      | 3.65         | 2.85    | 20.5                 |
| Q3 2024      | 3.90         | 3.25    | 21.7                 |
| Q4 2024      | 3.95         | 3.40    | 22.1                 |
| Q1 2025      | 4.00         | 3.75    | 23.6                 |

### KPI Movement Table

| KPI                | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|--------------------|---------|---------|---------|------------|------------|
| Passenger Volume   | 2.05M   | 2.18M   | 2.24M   | +9%        | +2.8%      |
| Load Factor (%)    | 107.0   | 108.2   | 108.8   | +1.8 pts   | +0.6 pts   |
| Digital Bookings   | 1.0x    | 1.7x    | 2.0x    | +100%      | +18%       |

### Key Management Quotes

1. **“We are well positioned to deliver another record quarter, despite heightened uncertainty.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Management is confident in demand and execution, even with macro risks.*

2. **“AI-driven yield management in place across all brands.”**  
   *Q1 2025 10-Q*  
   *Interpretation: Technology is now a core driver of pricing and margin optimization.*

3. **“Booking trends remain robust, with record wave season activity.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Forward demand is strong, supporting revenue visibility.*

4. **“We are maintaining price integrity while driving occupancy.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: No discounting to fill ships, supporting yield and margin.*

5. **“Bunker prices remain elevated at $655/ton, but operational efficiencies are offsetting some of the impact.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Input cost risk is present but being actively managed.*

6. **“Customer deposits up 15% YoY, reflecting strong forward bookings.”**  
   *Q1 2025 10-Q*  
   *Interpretation: Liquidity and demand pipeline are robust.*

7. **“We are seeing early signs of normalization in Asia/Pacific, with 23% YoY revenue growth.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Geographic diversification is contributing to growth.*

---

**Bottom Line:** Royal Caribbean is set to deliver another strong quarter, with digital and AI initiatives providing incremental upside that may not be fully appreciated by the market. Margin expansion and robust demand trends support a bullish stance, though input cost and macro risks warrant monitoring.

RCL: Digital & Demand Tailwinds Drive Q2 Upside