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Royal Caribbean Cruises Q3 2010 Earnings Call Transcript

Royal Caribbean Cruises Q3 2010 Earnings Call Transcript

Royal Caribbean Cruises (RCL)

Q3 2010 Earnings Call

October 26, 2010 10:00 am ET


Adam Goldstein - Chief Executive of Royal Caribbean International and President of Royal Caribbean International

Richard Fain - Chairman and Chief Executive Officer

Brian Rice - Chief Financial Officer and Executive Vice President

Daniel Hanrahan - Chief Executive of Celebrity Cruises and President of Celebrity Cruises


Sharon Zackfia - William Blair & Company L.L.C.

Kevin Milota - JP Morgan Chase & Co

Janet Brashear - Bernstein Research

Felicia Hendrix - Barclays Capital

Assia Georgieva - Infinity Research

Timothy Conder - Wells Fargo Securities, LLC

Gregory Badishkanian - Citigroup Inc

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Steven Kent - Goldman Sachs Group Inc.

Steven Wieczynski - Stifel, Nicolaus & Co., Inc.

Robin Farley - UBS Investment Bank



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Good morning. My name is Ginger, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Cruises Ltd. Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. Mr. Brian Rice, Chief Financial Officer, you may begin your conference.

Brian Rice

Thank you, Ginger. Good morning. I'd like to thank each of you for joining us this morning for our third 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 of Investor Relations.

During this call, we will be referring to a few slides, which we have posted on our investor website, 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 that are forward-looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Additionally, we will be discussing certain financial measures, which are non-GAAP as defined, and a reconciliation of these items can be found on our website.

Richard will begin with his comments. I will follow with a brief recap of our third quarter, comment on the demand environment and update our forward guidance. Adam and Dan will then talk more about our brands, and then we will open the call for your questions. Richard?

Richard Fain

Thanks, Brian, and good morning, everyone. As always, it's a pleasure to have an opportunity to provide an update on what's happening in our business. And you'll all be happy to know that one of the advantages of having good news is that it's easier and quicker to report on the converse. Today, obviously, we are reporting more good news.

As Brian will go into further in a few moments, both revenues and expenses continue to improve. Profits for the third quarter were better than expected, and the fourth quarter is better than expected and 2011 is better than expected. I'm told that some would call that a trifecta. I wish that I could say that this was evidence that the economic troubles are behind us.

Unfortunately, we are producing these results despite rather than because of the economy. The bulk of our improvement comes from the benefits of our new ships and better management of our existing ships. Our brands are gaining traction, and our global strategy is working. So while I wish the economy were more of a driver, the fact that we're doing this well against such headwinds augurs particularly well for the future.

Speaking of the future, we've also started providing insight into 2011. We have not completed our budgetary process for next year, so we're not providing details about specific areas yet. Furthermore, I'll remind you that the booking period is still early, and we get constantly more understanding of patterns as we approach year-end and as we entered the WAVE Period. Nevertheless, our revenue management systems are quite sophisticated, and we get a lot of insight from early patterns. Those patterns are very encouraging so far, and historically, they've been quite accurate.

Based on them, we believe that the yield improvements, similar to the 4% to 5% we're getting in 2010, are likely for 2011, even without a strong boost from the economy. And we expect that this will drive our profitability above the previous best year in our history.

It will also drive meaningfully positive free cash flow, again, even during year with the new ship delivering for Celebrity. Obviously, this is all very preliminary. But equally obviously, we don't make such projections lightly, and we continue to gain confidence in them.

While Europe as a whole has proven very strong, that, unfortunately, doesn't hold true for our Spanish operations. Pullmantur has been buffeted by the worst recession of any of the countries in which we operate. And unfortunately, the recession in Spain shows no signs of abating anytime soon. In looking forward, we have assumed that the Spanish economy continues to act like a sea anchor.

However, the management in Spain has been very proactive in finding ways to minimize the impact. That includes shifting itineraries and redeploying assets. Those actions have improved the situation in 2010 and are expected to do more in 2011. But the real upside will have to wait some economic support.

As we look forward, we're also looking to a rapidly improving balance sheet, supporting our target of returning to investment-grade status soon. Who would have imagined that so soon after the economic collapse, we would already be talking about record profits, positive free cash flow and investment-grade rating. Again, this year has required an amazing focus throughout the organization on improving our returns and disciplining our processes. I'd like to thank all of our people at sea and on land for making such progress and for giving us such further process to look forward to. With that, I'll turn the microphone back over to Brian to go over the financials.

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