Royal Caribbean Cruises Q1 2010 Earnings Call Transcript
Royal Caribbean Cruises (RCL)
Q1 2010 Earnings Call
April 28, 2010 10:00 am ET
Executives
Brian Rice - Chief Financial Officer and Executive Vice President
Adam Goldstein - Chief Executive of Royal Caribbean International and President of Royal Caribbean International
Richard Fain - Chairman and Chief Executive Officer
Daniel Hanrahan - Chief Executive of Celebrity Cruises and President of Celebrity Cruises
Analysts
Sharon Zackfia - William Blair & Company L.L.C.
Ian Rennardson - BofA Merrill Lynch
Janet Brashear - Sanford C. Bernstein & Co., Inc.
Mickey Schleien - Ladenburg Thalmann & Co.
Assia Georgieva - Infinity Research
Felicia Hendrix - Barclays Capital
Timothy Conder - Wells Fargo Securities, LLC
Gregory Badishkanian - Citigroup Inc
Samir Bendriss - Pareto Securities
Steven Kent - Goldman Sachs Group Inc.
Steven Wieczynski - Stifel, Nicolaus & Co., Inc.
Robin Farley - UBS Investment Bank
Presentation
Operator
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Good morning, my name is Miranda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean First Quarter Earnings Conference Call. [Operator Instructions] Mr. Rice, you may begin your conference.
Brian Rice
Thank you, Miranda. I'd like to thank each of you for joining us this morning for our first quarter earnings call. With me here today are Richard Fain, our Chairman and Chief Executive Officer; Adam Goldstein, President and CEO of Royal Caribbean International; Dan Hanrahan, President and CEO of Celebrity Cruises; and Ian Bailey, our Vice President, Investor Relations.
During this call, we will be referring to a few slides, which we have posted on our investor website, www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward-looking statements.
During this call, we will be making comments, which are forward looking. Forward-looking statements do not guarantee future performance and do involve risks and uncertainty. Examples are described in our SEC filings and other disclosures. Additionally, we will be discussing certain financial measures, which are non-GAAP, and a reconciliation of these items can be found on our website.
Richard has some comments to begin our call. I will follow with a brief recap of the first quarter, update our forward guidance and comment on the recent demand environment. Adam and Dan will then talk more about their brands. And then we'll be open the call for your questions. Richard?
Richard Fain
Thank you, Brian, and thank all of you for joining us this morning. As you can see from our earnings release, the first quarter turned out better than we were expecting, and the full year is looking better as well. I'm going to let Brian take you through the details, but, as you know, we ended the quarter $0.10 to $0.15 better than expected. And this improvement carries over into our full-year forecast.
Note that the first quarter includes the non-recurring gain from a legal settlement. And then without the gain, our results were just above breakeven for the quarter. This gain was in our forecast and, even without it, we did substantially better than the first quarter of 2009.
Now cost control was, and remains, vitally important. We've been talking about that quite a bit recently. But the most important part of the improvement in our earnings is being driven by improvements in revenues. Net yields turned positive this quarter, and were stronger than we expected just three months ago. Now don't misunderstand me, I'm definitely not excited by a 2.6% yield improvement.
The economy is clearly still weighing on our performance, and the improvement that we've had is off of a dismal base. But we have now reached an inflection point on yields, and that's an important milestone worth noting. We're certainly not where we want to be, but turning the corner is the first step to real and significant improvement, and we have clearly turned that corner.
Now switching to cost, expense controls were once again a meaningful contributor to the quarter's results. And they remain a central tenet of managing the company going forward. The strengthening of the U.S. dollar helped reduce costs a bit in quarter 1, but the majority of the expense feed came from good, old-fashioned focus of the task in hand.
I'm also very pleased with what we've accomplished on the fuel front, related both to itinerary and new ship optimization. Despite the run-up we've seen in the worldwide price of oil, the combination of our swap portfolio and our fuel consumption management actually allowing us to reduce our fuel expense calculation for the full year.
In addition to these fuel and FX impacts, we continue to have a rigorous focus on our other operating and running expenses. It is not any simple win in this equation, just a constant and continuous focus across all operating and general and admin areas.
More broadly speaking, our top priorities at the company continue to be focused on improving our return profile, moving towards an investment-grade rating and further expansion of our global footprint. Strengthening the balance sheet and managing towards an investment-grade rating are a key part of our longer-term strategy.
Capital spending for other current expansion program peaks this year, as it is expected to drop in half by next year. At the same time, debt repayments are ramping up a bit, and it's our intention to meet these repayment obligations with operating cash and we'll be deleveraging the balance sheet. Based upon our current guidance, many of our current metrics will show significant improvement this year, and we expect to maintain an improving trajectory over the next few years.
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