Royal Caribbean (RCL): Revenue +6.5%, Earnings DOWN. Is RCL a Buy?

Royal Caribbean Cruises Ltd. (RCL) Q2 2026 — Reported before the open on July 28 (Q2 2026, the three months ended June 30, 2026). Total revenue $4,832M, up 6.5% from $4,538M. Adjusted EPS $4.21 against a Street number near $3.98 — a beat — and against $4.38 in the same quarter last year, a 3.9% DECLINE. Operating income fell 1.7% to $1,307M and the operating margin went from 29.3% to 27.0%. Adjusted EBITDA fell 1.1% to $1,830M and that margin fell 290bp, from 40.8% to 37.9%. Management raised full-year adjusted EPS guidance to $17.73-$17.87. The stock rose from $305.04 to $322.50, up 5.7%, and closed at $324.00 on August 3. The number nobody put on air: total revenue divided by guests carried was $2,013.26 a year ago and $2,014.12 this quarter. That is EIGHTY-SIX CENTS more per guest, on 145,009 more guests. Royal Caribbean did not raise the price of a cruise in any way that reached the income statement — it sold more of them. Available passenger cruise days rose 4.9%, load factor was 110.2% against 110.3%, and passenger ticket revenue per available berth-day actually FELL 0.3%, from $247.17 to $246.38. In constant currency net yields grew 1.2% against net cruise costs excluding fuel of 3.9% — a spread of NEGATIVE 270 basis points. That is why revenue grew 6.5% and operating income fell. THE CALL: HOLD (4/5, A SUPERB OPERATOR, AND THE SPREAD JUST WENT THE WRONG WAY.) — base-case value ~$270.0 vs ~$324.0 today. KEY METRICS: - CALL: HOLD 4/5 — fair value ~$270 vs $324.00 (about 17% BELOW). An ENTERPRISE frame, because $21,961M of net debt and $16.5B of ships on order make an equity-only model the wrong lens. EV = 267,448,348 shares (303,877,626 issued less 36,429,278 treasury) at $324.00 = $86.65B, plus net debt of $22,836M of debt less $875M of cash = $108.61B — 14.4x the ~$7.53B of FY2026E adjusted EBITDA the guidance implies. STEP 1, an EV/EBITDA grid on FY2027E EBITDA of $7.5B / $8.1B / $8.6B at 9.5x / 12.5x / 14.0x: exactly TWO of the nine cells clear $324 and both need a 14x multiple, the multiple RCL trades at today. Weight the diagonal 30/45/25 and the grid gives $284. STEP 2, an unlevered DCF (EBITDA less cash tax less ALL capex plus the customer-deposit float, 9.25% WACC, 3% terminal), which charges the entire $16.5B order book against the cash: PV of 2027-2036 $35,911M plus terminal $51,715M = EV $87,626M, less $21,961M of net debt, over 267.4M shares = $246. We blend to ~$270. - THE UNDER-COVERED ANGLE — THE YIELD-COST SPREAD INVERTED. In constant currency net yields rose 1.2% ($283.56 to $287.05 per available berth-day) while net cruise costs excluding fuel rose 3.9% ($126.76 to $131.71). As reported the figures are $288.95 and $132.30. Per berth-day RCL took in $3.49 more and spent $4.95 more ex-fuel, $9.49 more including it. The company's own GROSS MARGIN YIELD — published right next to net yields and almost never quoted — fell 5.6%, from $142.00 to $134.11. That is why revenue +6.5% became operating income -1.7% and a 290bp adjusted EBITDA margin decline. - GROWTH IS BERTHS, NOT PRICE: APCD rose 4.9% (12,942,385 to 13,572,396), guests rose 6.4% to 2,399,066, and load factor was 110.2% vs 110.3% — unchanged. Roughly four-fifths of the revenue growth was simply more berths. Revenue per available berth-day rose only 1.5%, $350.63 to $356.01. Split it: passenger ticket revenue per berth-day FELL 0.3% ($247.17 to $246.38) while onboard rose 6.0% ($103.46 to $109.63). All of the pricing came from what happens after boarding. Customer deposits are a record $6,736M — but that is +5.6% against +4.9% capacity, so the record book is largely a capacity effect. - THE FUEL TAKE IS WRONG, THE LABOUR LINE IS THE STORY: fuel was 7.3% of revenue at $355M (+27.2%), $839 a metric ton net of hedging on 422,000 tons — but 58% of forecast consumption is hedged and the company's own sensitivity table says a 10% move in fuel prices is worth just $26M for the rest of the year, about 1% of guided EPS. Strip fuel out entirely and costs still ran +3.9% against yields of +1.2%. PAYROLL rose 23.1%, $329M to $405M — $25.42 to $29.84 per berth-day, UP 17.4% per unit. Commissions and transportation rose only 2.6% to $622M; other operating rose 9.6% to $615M; D&A rose 11.3% to $464M and is guided at $1,905-$1,915M for the year. - THE RAISE RESTS ON Q4: first-half adjusted EPS was $7.81, Q3 is guided to $6.26-$6.36, and the full-year midpoint is $17.80 — so the implied Q4 is $3.68 against $2.77 a year ago, UP 33%, in the seasonally smallest quarter. The cost guide needs the same pivot: NCC ex-fuel per APCD ran +2.5% in H1 and must average roughly -2% across H2 to land at the guided +0.4%. CASH: H1 operating cash flow $3,694M but capex went $1,264M to $3,237M, so free cash flow fell from $2,109M to $457M; strip the $996M increase in customer deposits and it was NEGATIVE $539M. They returned $1,709M to shareholders and raised $5,716M of debt. Net debt went $20,520M to $21,961M — up $1,441M in six months, though the RATIO improved to about 3.0x LTM adjusted EBITDA. - STREET vs US: 52 analysts, consensus rating BUY — but 25 buys, 21 holds and 6 sells, so 27 of the 52 are not buyers. Consensus target $354.50 in a wide $296-$425 range, about 9.4% above the $324.00 close, which is thin for a Buy-rated mega-cap. On the BUSINESS we ALIGN with the Street almost completely: best operator in the sector, real demand, repaired balance sheet, good capital allocation (3,797,452 shares repurchased in H1 at an average of $285.20, against $324.00 today). On the PRICE we DIFFER and are more CAUTIOUS: our ~$270 is 16.7% below the close and 23.8% below the Street. $354.50 requires roughly 13.9x EV/EBITDA on our 2027 estimate, sustained — the multiple RCL holds today and near the highest it has ever held. What to watch: Bullish: net cruise costs excluding fuel per APCD actually printing negative in Q3 as guided (-1.6% to -1.1% in constant currency), which would flip the yield-cost spread positive and prove the first half was timing; net yields re-accelerating above 3% in constant currency as the private destinations go from three to eight by 2028 — owned destinations capture spend that leaks to third-party ports; continued buybacks in the $280s while free cash flow inflects after the 2028 capex peak. Bearish: payroll per available berth-day compounding at 17.4% — crew cost is contractual and Icon-class ships need more of it; the 2028 order-book wall, $4,587M of ship installments in a single year against a business that generated $457M of free cash flow in the first half; and the implied Q4 of $3.68, guided in the same release that flagged a booking impact from prolonged geopolitical activity. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.