Royal Caribbean Cruises (RCL)

Q2 2010 Earnings Call

July 22, 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


Mickey Schleien - Ladenburg Thalmann & Company

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

Kevin Milota - JP Morgan Chase & Co

Rachael Rothman - Susquehanna Financial Group, LLLP

Janet Brashear - Bernstein Research

Felicia Hendrix - Barclays Capital

Assia Georgieva - Infinity Research

Timothy Conder - Wells Fargo Securities, LLC

Steven Kent - Goldman Sachs Group Inc.

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

Robin Farley - UBS Investment Bank



Good morning, my name is Camilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Second Quarter Earnings Conference Call. [Operator Instructions] Mr. Rice, you may begin, sir.

Brian Rice

Good morning. I'd like to thank each of you for joining us this morning for our Second 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 would 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. 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 has some comments to begin our call. I will follow with a brief recap of our second quarter, update our forward guidance and comment on the recent demand environment. Adam and Dan will then talk more about our brands. And then we will open the call for your questions. Richard?

Richard Fain

Thank you, Brian, and thank you all for joining us on this call. Today, my comments will be brief because I think the numbers themselves deliver a nice story. Simply put, the year is progressing better than we expected it to. And generally, our business is as good or better than projected, both in this country and abroad. The only negative factor impacting us is the weakness of the euro and sterling, which is automatically mitigated to some degree by the reduction it causes in our euro and sterling expenses. Thus, our revenue is somewhat lower than projected, but so are our expenses.

Even better, the cost management program allowed us to enjoy reduced costs in addition to the currency benefits. So the net impact of the currency-related expense reductions, combined with our more meaningful cost reduction efforts, is that expenses have decreased at a rate faster than the currency revenue reductions.

Net results. Very simply, our bottom line is better than planned, both for the quarter and for the year as a whole. There are changes between different categories on the P&L, but none of these are economically driven or impact our bottom line. Now I recognize that considerable angst exists regarding the state of the economic recovery. Like everyone else, I would prefer a more robust economy. However, we've always assumed a lackluster economic environment for 2010, and we've never counted on big improvements driving our results this year. Rather, we've assumed that our new and more efficient ships, along with good cost control, would drive substantial improvements in profitability, and that is clearly proving to be the case. Our previous description of our recovery as "slow and steady" remains unchanged. And we have yet to see a faltering or a deviation of our earlier expectations.

The booking volumes coming into our call centers are strong; our ships are sailing full; most importantly, our guests are enjoying fantastic vacations; and we are mindfully watching each and every penny. To me, that overall characterization seems pretty consistent with what you've heard us say over the last several quarters, and it's the source of our strength even during difficult economic times. We continue to believe that this strength is driven by the resiliency of the cruise proposition, combined with a strong corporate platform, one that protects our downside risks but is increasingly geared to pop in an economic recovery.

This fundamental landscape and our strategic goals remain unchanged, and we intend to keep those topics top-of-mind as we execute on our strategy of diversifying globally and improving our returns. It isn't happening overnight. But it's my continued expectation that as fleet mix and sourcing deepen, assets being optimized and cost control remaining a primary focus, our returns and our credit metrics will improve meaningfully.

Now with all this talk regarding long-term strategy, I also want to remind you that we continue to focus tactically as well, particularly around the balance sheet and liquidity. We continue to take steps to further improve our liquidity, and that's now exceeding $1 billion. And we'll continue to be prudent in the use of hedging to help manage our risks in such things as oil prices and interest rates.

At this stage, we still don't see any immediate need to tap the capital markets, but we will continue to consider alternatives on an opportunistic basis. Our new hardware is performing terrifically, and so are some of our new initiatives. The response to the DreamWorks partnership on Allure has been tremendous, and we're convinced that we'll be able to build on the momentum of the Oasis-class with the introduction of Allure this fall. Equally encouraging is the fact that Celebrity Eclipse has taken the U.K. market by storm. And finally, we have seen quite encouraging early results on our Millennium class and cruise, both in terms of guest satisfaction, as well as returns. This kind of revitalization is proving to produce very attractive returns, and I believe it is likely that we will be doing significantly more of these in the future.

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