Royal Caribbean is seeing 'very, very strong' demand: CFO

Royal Caribbean Group (RCL) posted better-than-expected second quarter results, raised its full-year guidance, and reinstated its dividend. The stock, however, was trading lower on cost concerns.

Royal Caribbean Group CFO Naftali Holtz says the increase in costs is related to stock-based compensation, which is higher due to the stock's performance.

When it comes to how the business is doing, "demand has continued to be very, very strong," with Holtz crediting the earnings beat to strong pricing. Customers are "thirsting" for the experiences Royal Caribbean provides, Holtz argues, adding that occupancy is back to normalized levels.

The cruise company reinstated its quarterly dividend, which will be $0.40 per share. Why bring it back now? Holtz says it's because the company has reached its major financial goals and reduced its leverage, which frees Royal Caribbean to return cash to shareholders.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Stephanie Mikulich.

Video Transcript

Royal Caribbean reporting better than expected second quarter results and seeing strong demand raising its outlook.

Cruise giant also reinstating its dividend Despite that good news, you can see the stock slipping here.

One thing that may be weighing on investors an expected increase in annual costs.

Joining us now to walk through all this royal Caribbean CFO tli Holtz Natale, it's always good to see you.

So you look through this report, uh, you boosted adjusted EPS guidance for the year that beat estimates.

Um, I do see some commentary that perhaps higher than expected costs could be creating some concern.

But Natalia, let's start with your your re.

Give us your take on the quarter.

First of all, great to be here and thank you for having me.

We are very happy with our results today.

Our focus on performance.

We beat the second quarter.

We raised outlook for the rest of the year.

We achieved our financial targets 18 months earlier, our balance sheet in a very strong position and we reinstated the dividend.

So our focus on delivering the best vacations in the world and great financial performance is really our focus as regards to your question around the cost.

We did raise our our cost by 50 basis points, but that is entirely due to stock based compensation, which is non cash.

And that is really because of the share appreciation that happened in the quarter that we on our on our costs.

But our formula remains the same.

Moderately grow the business moderately grow yields and very much strong strong controls.

Cost controls to make sure that we enhance margin and that drives shareholder returns.

And Naftali talk to me about pricing and what you're seeing on that front and pricing versus sort of volume of folks traffic on the ships here.

How that's looking going into the rest of the year.

Yeah, so really, demand is continuing to be very, very strong.

We've been seeing it consistently quarter over quarter now.

Our second quarter beat was really driven by strong pricing, and that's really because we put the right experiences in front of customers and they are really thirsting for that experience.

And really, that's right, the pricing going forward.

Really, our occupancy levels are really back to normalised level, so all our increased guidance and really the strength we're seeing is about the pricing and again putting the right experiences on the ships private destinations on board and really having the right commercial apparatus.

It is what's driving us to bring more people to our ecosystem.

Really?

Uh, getting into them into the vacation and staying there and and coming back to us again and again.

Now, you you did decide, uh, to restart dividends.

How comes of tally and and why now?

Yes.

So, as I said before when?

Two years ago, we had a financial programme that really was focused on getting us back to what we call base camp and really focusing on making sure that we recover our margins and really strengthen the balance sheet.

And today we have achieved that we have achieved trifecta.

That's our financial programme 18 months earlier.

Our leverage now is below 3.5 times way within the target leverage that we have for the company and that would allow us to really expand our capital allocation and dividend is kind of the first step for that.

And if you think about it, historically, we always had a balanced capital allocation.

We see a lot of growth in the company, so we want to continue to invest in a company, but also with the excess cash flow.

We wanna also return it to shareholders.

And that's the first step today, Um, Naftali, I have to say I mean, the numbers look pretty good.

You sound quite optimistic.

And yet the stock is down, and I'm just curious if you're hearing anything from investors today, um, or from the analyst who track the stock, that shows what they're concerned about.

Yeah, I think we are all trying to understand a little bit what it is.

But honestly, we're just focused on performance, putting the right experience on of people and the customers.

Making sure we are delivering that with strong financial performance is really what we believe we first control but also will drive shareholder return.

So, you know, we are normalising the pricing right and the yields, and that's because our occupancy levels are back to normal.

But we're very excited about the future.

And honestly, we're just starting.

Really.

Everything that I talked about is getting us to base gam.

But if we kind of look at the bigger picture, Cruise is a $65 billion category in a $1.9 trillion vacation market.

We think we have a great opportunity to continue to win, share with the consumer and do it for the next several years.

And so for that we're very excited.

And we're going to do that with our proven formula.

Modestly grow our fleet modestly grow our yield and very strong cost control to enhance margin and really drive Shareholder return.

Naftali.

Great to see you.

Thanks so much for joining us to talk us through the quarter.

Appreciate it.

Thank you.