Q3 2019 Earnings Call
Good morning, My name is Dorothy and I will be your conference operator today at this time I would like to welcome everyone to the Royal Caribbean Cruises Limited third quarter 2019 earnings call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press Star then be number one on your telephone keypad. If you would like to the draw. Your question press. The pound key. Thank you I would now like to introduce Chief Financial Officer, Mr., Jason Liberty Mr. Liberties, the floor is yours.
Thank you operator, good morning, and thank you for joining us today for third quarter earnings.
Joining me here in Miami or what your faith in our chairman and Chief Executive Officer, Michael Bayley, President and CEO Walker of international and grow the michelini or Vice President of Investor Relations. During this call we will be referring to a few slides, which had been posted on our investor website, Www Dot RCR investor Dot com.
Before we get started I would like to refer you to our notice about forward looking statements, which is on our first slide.
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 or FCC filing in other disclosures.
Please note that we do not undertake to update the information in our filings as circumstances change.
Also we will be discussing certain non-GAAP financial measures, which our adjusted as defined at a reconciliation of all non-GAAP historical items can be found on our website.
Although we stayed otherwise all metrics Ronnie constant currency adjusted basis.
If you will begin by providing a strategic overview of the business I will follow up at a recap of our third quarter results provide an update on the current booking environment.
Provide an update on our guidance for the full year in fourth quarter of 2019, and then close or some early thoughts on 2020.
We will then open up the call for your questions Richard.
Thank you, Jason and good morning, everyone. It's been another very good quarter Royal Caribbean and we're pleased to provide some color.
Overall the results for the third quarter end, our expectation for the fourth we're all very encouraging our operating performance on virtually any metric we follow is equal to or better than we had expected.
Of course hurricane during impacted us negatively, but we've been able to offset over half of this impact with improved performance elsewhere.
Of course, no year and no industry goes exactly as predicted and they'll always be certain hiccups in any given year.
Our job is to try and do two things.
Firstly to minimize our exposure to such issues. So that they can remain rare and secondly to compensate for them elsewhere in the business. So they can just be background noise in our full report.
We know that you expect us to accomplish both of these objectives and we have been surprisingly successful over the years in doing so.
However, 2019 has been an unusual year with an unusual space such challenges.
I would include in this things like the collapse of the dry dock at Freeport, which has never happened before the impact of Hurricane Dorian, which is the largest impact from any hurricane in our company's history, the abrupt change and government policy toward Cuba et cetera et cetera.
The result of all these impacts has been to change what would have been an amazingly successful year into simply he's very successful here.
I give credit for that to our unbelievable operating teams, who continue to perform well in differentiating our brands and raising our prices while controlling expenses.
I would point to a number of key drivers in the success.
For example, our investments in destinations are really paying off.
Perfect day at Coke, Okay continues to amaze, our Royal Caribbean International guest and boost our bottom line.
Our vessel modernization program is driving strong results. These upgrades are expensive, but our guests love them and reward us accordingly.
Take our investments in technology, which are beginning to bear fruit. These investments are expensive and demanding but they improve the experience for crew and guests alike. They make us more attractive who more efficient.
Well take for example are supported the travel agent community, which is strong and long lasting we treasure the value. These advisors add to the process and these advisors in turn reward us with your trust and their support.
And cost control is always challenging but doing so in our complex an ever changing environment is especially so.
Undertaking these significant innovations while controlling cost to low single digits is challenging but our teams are committed to the focus.
And look at the China market, which is paying off very nicely.
It's a long term strategic program, but our focus on developing the market has exceeded our expectations in terms of performance our sales in China are holding up well despite any economic concerns.
The result of all these things is a very positive year the markets in the U.S. in China have been particularly strong but every geographical market. We serve is up from last year, whether that's North America Europe , China wherever.
And our forward guidance shows that we expect that to continue.
We operate in an incredible variety of source markets and destination markets and each market has its own ups and downs, but all the market share. The same main characteristic and that diversification seems to balance out overtime. This allows us to follow a remarkably consistent upward trajectory.
We continue to believe that upward trajectory is inevitable consequence of the shift in consumer spending habits for spending their money on material possessions to wanting experiences.
The consumers' growing demand for experiential travel fits nicely into our sweet spot.
Is making cruise vacations more relevant and more mainstream.
And our innovations are making us more attractive therefore, expanding our role in this market.
As a result, we expect to end this year with more revenue on the books than ever before with very high book load factors at very attractive pricing.
All of that bodes well for an attractive 2020.
[noise] one the other overarching essential feature for us is sustainability.
We continue with our relentless efforts to eliminate single use plastics onboard our ships reduce our carbon footprint sustainably source, our food and other supplies et cetera et cetera.
What are the more interesting things, we recently announced was our second perfect day destination.
I was just in auto out to where we finalized the deal to open our second perfect experience at Lipa, they're involved a lot to.
This is exciting because it expands on the amazingly successful perfect day concept.
But there's also one very special aspect of this project is also worth noting.
We will be boot explaining more about this in a press release to be issued shortly but.
Lapa will be the first private crews destination in the world that achieves carbon neutrality.
All of the energy consumed will be generated from renewable sources.
Accomplishing that requires both major investment and major innovation.
But perfect day, Lapa will be rich in both.
We're very excited about some of the techniques were using to accomplish that carbon neutral goal.
Global climate change is one of the defining issues of our time and we want to do all weekend do upward game in this very important struggle.
So to recap it has been an unusual year, but our business continues to be robust and we're very optimistic about our operating model.
Our business.
Our investments in the future our people.
The future is price.
And with that I get to ask Jason to provide an overview of the results.
Right.
Thank you Richard.
Ill begin by talking about our results for the third quarter of 2019.
These results are summarized on slide two.
For the quarter, we generated adjusted earnings of $4 in 27 cents per share, which is eight cents lower than our guidance and 7% higher than same time last year.
Stronger close in demand for our core products combined with the timing of expenses, partially offset a 13 set impact from hurricane Dorian [noise].
Hurricane Dorian was one of the most operationally and financially disruptive hurricanes that we have ever experienced.
The location.
Timing and duration of the storm caused three of our main Florida ports to temporarily close during key turnaround days.
Due to these closures, we had to cancel one failing and shortening or lengthening another 15 sailings, resulting in a reduction in APC. These for the third quarter.
Also.
We closed perfect day, a cook, okay for 10 days.
Besides the financial impact to our operation from disrupted failings, we have and will continue to contribute to ongoing relief efforts and the Bahamas.
While some of our relief efforts, we're in the form of financial contributions we are particularly proud.
A more than half a million hot meals that our crew shore side employees and guess help prepare and deliver during this very difficult time.
Our net revenue yields increased 6.4% year over year, which excluding dorian exceeded our expectations for the quarter.
The hurricane negatively impacted overall revenue by $21 million.
Net cruise costs excluding fuel.
Were up 11% for the quarter.
The reduction in APC, These and relief expenses related to hurricane impact of this metric by 150 basis points.
[noise] on an absolute basis cost came in better than expected driven by timing.
Now I'd like to share the trend that we haven't seen in the demand environment for the balance of 2019.
As we move into the fourth quarter many of our ships transition out of Europe , Alaska in Bermuda and begin their winter seasons, as such about 50%, 56% of our capacity will be in the Caribbean, 18% will be in the Asia Pacific region.
And 10% will be in Europe .
Q4 bookings continue continue to be in line with our expectations at rates that are significantly higher year over year.
Now, let's turn to slide three to talk about our guidance for the full year.
We are updating our guidance to a range of $9 in 50 cents to $9.55 per share.
This range includes the negative impact of approximately 15 cents from hurricane Dorian that relates to disruption and the relief efforts.
Excluding this impact we are in effect, increasing the midpoint of our guidance by approximately eight cents.
As better third quarter results and improve revenue outlook for the fourth quarter and some expected improvements below the line are more than offsetting slightly higher costs.
As it relates to our key metrics, we expect our net revenue yields to increase approximately 8% for the year.
This is inline with our previous guidance as strength in the revenue.
Environment is offsetting the negative yield impact from the hurricane.
From a cost perspective, we expect net cruise costs, excluding fuel to be up approximately 11%.
The increase in guidance is driven by the reduction in capacity and relief efforts from the hurricane together with a further increase in technology and product development investments.
We anticipate fuel expense of $696 million for the year, and we are 60% hedged at a price of $380 per metric ton.
In summary, based on the current business outlook, along with current fuel prices interesting currency exchange rates. Our adjusted earnings per share are expected to be in the range $9 in 50 cents to $9.55.
Now, we can turn into our guidance for the fourth quarter, which is on slide four.
Net yields are expected to be up approximately.
6.75% with the addition of silver see terminal, a and perfect David Cook, Okay, driving approximately 300 basis points of a year over year improvement.
Net cruise costs, excluding fuel for the fourth quarter are expected to increase 14.5%.
Our cost metric includes approximately 300 basis points from the operations of silver see the cruise terminal and perfect day.
Also our cost metric is impacted by an increased number of dry dock days versus last year, which is affecting the metric by approximately 600 basis points.
Other drivers for the expected cost increased for the quarter include the shift in the timing of expenses for the third quarter. Some additional investments in technology.
And product development and relief efforts.
That relate to the hurricane.
Now, including the outlook express the ball and based off of currency fuel prices interest rates and currency exchange rates, our adjusted earnings per share for the quarter are expected to be approximately $1.40 per share.
Now I'd like to take you through some preliminary insights for 2020, which while still very early is currently shaping up to be another incredible year for the company.
Three of our brands will welcome new ships, and we will continue to modernize our existing fleet by adding onboard revenue areas state rooms in activities.
We will also significantly increase the number of gas experiencing perfect day at Cook Okay.
Now regarding new ship additions celebrity edge with a game changer for celebrity cruises when she joined the fleet about a year ago.
And we're thrilled that you will be joined by celebrity apex in April of 2020.
Apex will spend this summer sailing in the Mediterranean before transitioning back to the Caribbean next fall.
As in apex are transforming celebrities fleet, just a silver amuse and silver moon are transforming silver sees.
Silver Moon will be delivered in August of 2020, and we'll spend the summer sailing a variety of European itineraries.
In addition, we are adding silver origins us overseas fleet of expedition ships next July .
Finally, Royal Caribbean will welcome Odyssey has received at the end of next year.
Odyssey will fail in the Caribbean for the 2020 and 2021 winter season with call to perfect day. She will then transition to Europe for the summer.
21.
These four ships are contributing to a capacity increase of just under 5% in 2020.
The timing of new ship deliveries combined with the quarter reporting wag for silver see result in more significant growth in the back half of the year than in the first half.
Now I'd like to provide you with an update on our 2020 deployment.
Our Caribbean capacity is growing about 2% year over year end will represent half of our overall deployment.
Key itinerary changes include the addition of year round short Caribbean sailings on independence overseas in northeast based product for wafers overseas and the addition of both celebrity apex and Odyssey of disease in the fourth quarter.
In total more than 70% of our guests sailing on the Caribbean cruise will experience perfect day I Cook Okay.
European Itineraries will account for 17% of our capacity in 2020, we have increased capacity in Europe by approximately 10% driven by an inaugural summer season for celebrity apex and silver Moon.
In addition, a floor of the sees will be failing from Barcelona immediately after undergoing a $165 million monetization.
Asia Pacific Itineraries will represent 17% of our capacity next year with increased appointment in China, Australia, and South East Asia.
Finally, we are slightly increasing our capacity in Alaska, although the product will still only account for 5% of our overall inventory.
Bookings in pricing for 2020 have been trending ahead of same time last year for the past three months.
We did experience a brief loan demand surrounding hurricane Dorian, but bookings quickly rebounded to previous levels and are now nicely ahead.
At this point are booked apds are higher than same time last year in all four quarters and our load factors are up slightly on a like for like basis.
We have also seen an outward shift booking window relative same time last year since our last earnings call.
While we're not going to provide guidance for 2020 until January I will note that we do expect yields to vary by quarter with Q2 in Q4 likely to be our strongest periods due to the timing of new ship deliveries.
Terry changes related to Cuba will continue to compress our yields for the first half from 2020.
The most significant Cuba impact as expected during the first quarter with three of our brands, including our high yielding silversea not tomorrow brands rescheduled to visit the Ireland.
I want to take a moment to highlight certain changes in our cost base that will take place over the coming years.
Last year at this time I discussed expected future increases.
To our depreciation expense.
As Richard mentioned today and in past calls destinations technology, and our fleet modernization program, our key elements of our growth strategy.
These investment areas offer attractive returns, but sometimes have shorter depreciable lives than our traditional newbuilding investments.
Also some technology investments are not Capitalizable and will result in an increase to our cost base.
Finally, the new ship additions for celebrity and silver Steve.
Will result in those brands being a larger percentage of our overall mix in 2020.
These additions are expected to add to our yield and return profile, but also have a higher cost per berth.
While it's still too early to provide guidance for 2020, the combination of strong of our strong book position at an accelerating demand environment is certainly pointing to another year of robust yields and earnings growth.
With that I'll ask the operator to open up the call for a question and answer session.
Thank you to ask a question. Please press star followed by the number one on your Touchtone phone to remove yourself from Nick you press the pound key.
The interest of time, we ask that you. Please limit yourself to one question. If you have more than one question. Please press star one to get back into the queue and we will address additional questions as time permits. Please hold while we compile the Ken thereafter.
Our first question comes from the line of Jared So giant Wolfe research.
Hi, Good morning, everyone. Thanks for taking my question.
So in the last few months, we've seen some of the macro data again, a little bit weaker or some of the agent checks haven't been.
As positive as would we had seen earlier in the year.
Obviously, none of that seems to reconcile with what you're reporting and will end with what you're saying. So can you just talk about why you think there's a disconnect right now.
Hey, John Good morning.
I mean, I don't know, but necessary just.
Disconnect I think some of the you for US you. We operate this global platform, where we're sourcing guest throughout the the world and I think sometimes that does not connect itself to some of the price checks.
That the investment community is doing a regularly with the trade as as you commented our experience.
Since our last call for sure has been much different which at the time period, you were referring to in that environment has shown us acceleration.
Above our expectations outside of the short law, we experienced a on and around the during hurricane.
And Jared, it's Richard and I'll just to add you know.
Besides the diversification that we have which which helps support us there's an awful lot of companies specific things that.
We've been implementing over this period.
And it's the investments in the.
The vessel upgrades has been very impactful.
Michael might be willing to comment on the perfect Hey.
And the the technology improvements. So we've made we think all of these things are helping us.
Run slightly ahead of of the so just what normal momentum would get you.
Great. Thank you and just one quick follow up for me just on the fuel I know you give the disclosure on the hedge position, but it's still noisy and I know you're hedging more the mgo can you just tell us as you sit here today looking at the forward curve what your fuel expense would look like in 2020, and then Jason I know you gave the color on increased DNA for.
Next year do you have in a number that you can refers to.
Okay. So so on on the fuel side. It <unk> again, we're still going through our planning process. So it's it's still too early for us to comment on what our fuel expense will be in what our depreciation expense will be.
We've obviously invested.
Significantly and implemented in a in a rapid pace. Some are a piece systems, which will allow our fuel mix to look very similar next year as it does this year and so we should be take be able to take advantage.
Of the IFO benefits.
That we're seeing here in the forward curve I'm on the.
On the depreciation side.
I would say is that we can.
Just one other comment on the fuel side at least what we have seen generally from the analysts in terms of their fuel estimates again, while still early in our planning process seems generally aligned with what we're where we see fuel consensus.
Same comment on moving on and onto the depreciation side you saw it here in 2019, and you'll continue to see this trend that investments that we're making mainly in the technology space.
We have much more shorter lives and and so I would I would just say, while we're still in our planning process. There's a reason why I'm I'm I'm a emphasizing.
That there's going to be.
Higher depreciation costs.
Because of that and so I would I would just kind of point to take a look at that.
Okay. Thank you got it.
Next question comes from the line of Steve for Censky at Stifel.
Yeah, Hey, good morning, guys.
So the richer Jason I you know you could you give a lot of good details about how 2020 is shaping up and I understand you're not prepared to give any quantitative guidance right now, but you know in the past you guys have talked about this now this this 2% to 4% range being a somewhat of a fair starting point I guess the simple question is should that yield range still hold true.
Well thanks, Steve So as you as you noted it is obviously too early for us to begin to comment on what our yield guidance is going to be for next year are that 2% to 4% has generally represented on how our yield on a constant currency have grown now for for a for several years.
Obviously 2019, our like for like yields are 4.5%. So it's a little bit above that range I think what I would mean by the word robust is that the bookings and and and the demand trends that we're seeing shows that we will have.
A a very good year strong year in terms of our yield profile for next year.
But we will be more specific about where where that lands in January when we provide guidance.
Okay, Gotcha, I won't try to press that anymore.
Second question would be around your island.
Developments mean yesterday, you, obviously announced and T., who on top of South Pacific announcement, a couple of weeks ago and I guess the another question would be how do you guys think about returns on these investments and obviously you know so far coke. Okay. It's been a home run but the question is going to be head to head of returns look for these future development.
I think Michael might just be willing to comment on that I I would do yes, that's true.
So Steve I think as Richard mentioned and Jason as mentioned wed really delighted with the performance of perfect and Cook, Okay and.
The demand that we've seen for the product and this year, we've put a 11 ships into perfect day Who's been outstanding and then the demand for the.
Products that we sell on perfect day has also been outstanding me to give you one great price point, a over what it cabanas to the opening in February the selling for $1400 today. So.
We've got we think it really great product and there's a huge amount of demand for this product and we believe that the work that we're doing with perfect day in front of Watts to is gonna have exactly the same kind of demand from the Australian market and then the.
And then spin yesterday that we made about the Beach club the Royal Beach Club in Antigua, we've put a lot of thoughts in analytics into creating this experience than we have a good understanding of the kind of revenue that will generate from that product and I.
I think in its simplest form because I.
I have to talk to Jason about this when we look at the investments in the returns that we get with genuinely delighted with the returns.
In and if you just to add to it you know, it's really clear that our guests are looking for authentic experiences.
And those experiences we have you've been investing quite considerably on our ships as be modernize our ships and when we find is where were making those investments on island, especially with the volumes that we have our guests are willing to pay for that and that's all yielding very high returns on.
These investments that we're making.
And just just to add on Jason's point I think the strategy that we launched the truly a couple of years ago by taking the navigator and Mariner and now independence and putting them through royal amplified and into the short cruise market combined with perfect day. This being a real game changer for that segment of the market in that segment to the monkey.
It is about 24% to the entire American cruise market. So we've really scooped up a lot of demand for those products and we see that demand continuing.
And Steve I think one other things there's actually comes back to an earlier question about why.
We are doing differently than maybe you're seeing in some of your price checks.
We've really says strategically we think focusing on three areas will help differentiate us and those are destinations people and technology and we think that emphasis.
Is paying off with higher returns.
Okay got you and then one simple one for Jason and I'll get off, but but Jason I think you mention anything in your prepared remarks about Thomas Cook and just wanted to see if you guys saw any impact from them in the in the quarter.
Yeah. Thanks, Thanks, Steve.
Obviously, the unfortunate circumstances with Thomas Cook has been Oh, a situation we've been monitoring for war for some time.
But with with the recent events some it did impact our yields by about 15 basis points in the third quarter.
Now in saying that we really don't expect there to be or any kind of forward impact.
From.
Thomas Cook.
Being in the situation that the RIN and our our sales and marketing teams feel like we're we're in a very healthy demand environment and able to use other distribution.
To support our business in the UK.
Okay, great. Thanks, guys appreciate it.
Your next question comes from my line Robin Farley with you before.
Great. Thanks, I wanted to ask it looks like since last quarter. Your Capex for next year is up by about 500 million I know I think since then you announce the the freedom and she's getting 100 million dollar tree for is the other 400 million I'm going to the destination development projects that you've talked about or just.
Wondering what the biggest chunk of that.
Sure sure Thanks Robin for another thing.
It it did go up in and the key drivers of that is are the investments in destination also additional investments in terms of the modernization of our ships some of our investments in sustainability and technology as well as some of the new ship.
Investments that we're making that are that are part of that that increase.
Okay, Great and then just some.
Correct.
I know in the release you talked about.
It's actually being up like for like and right you said, but I didn't know if you were drawing a distinction <unk>.
For 2020.
Like for like or where you're not really.
Yeah, so so apds, whether like for like or just in the absolute Amaro up.
Nicely for us for 2020, the load factor side, we were just making there's just some structural things in terms of the timing of the newbuilds coming.
Coming in in the quarter lag you still if you were to look at our load factors in general there there are flattish, which is exactly where we want them to be relative to last year, but when you adjust for some of the structural elements. Our load factors are are nicely up.
Great that's.
Thank you you got.
[noise] any interest a timely assets you. Please limit yourself to one question and one follow up question. If you have more questions pressed on when they get back into queue and we will address additional questions as time permits. Your next question comes from the line Felicia Hendrix with Barclays.
Hi, Thanks, a lot good morning, Oh on so Jason just getting back to that kind of state Cook answer I'm just to be clear the 15 basis point impact that you're seeing there more find a distribution side and not the competitive if that's correct.
It was it was purely from the distribution side and not really hasn't really to.
More our bad debt related elements to a cruise is that they had sold that we had not collected payment on and of course.
We want to make sure that if it goes gets paid for those crews is whether we had gotten the cash or not.
Wanted to make sure we fulfill that vacation experience that they were promised.
Yeah. Thank you for that clarification, and then just bigger picture kind of.
Switching to the competitive environment and maybe some competitive pressures that you may or may not be seen globally I think that there's a lot of concern in the investment community about.
So the challenge is kind of only facing not only in year at <unk> Oster now in the Caribbean and they married is out there that you know with perhaps the brand or or a company that's kinda facing challenging to alleviate those they may drop prices, particularly in the Caribbean and that might affect your brand. So.
I'm just wondering if you could talk about how your position relative to Carnival, maybe you know globally and so more specifically in the Caribbean and why you may or may not be affected by pricing decisions that they make.
So felicia.
It's Richard and I would just comment I think our biggest competitor continues not to be carnival or the other cruise lines.
We really think they were much more competitive forces coming from elsewhere in the industry or that is from tourism from land tourism and ultimately from things like flat screen Tvs I think we've seen a major change.
For people going to buying vacations, and and especially cruise vacations versus flat screen Tvs, but I think we see that more of a factor and in terms of pricing from other competitors, whether its carnival or anyone else you know because of the way the industry man.
And just pricing and the fact that we fill the ship.
One company lowers its price in a period it will.
The effect shifts the timing of bookings, but in the end. There's all the number of bookings is going to equal roughly the number of burris out there. So I would I would actually say.
We're seeing strong industry demand in general cruising in general is I think.
Benefiting from the change in the way people are buying.
But I don't think how anyone competitors doing is particularly.
Impactful I think it's the industry and that's the economy and.
It's all the other kind of competitive and choices that people have.
And just add just one other comment to it if we show our commentary around 2020.
Whether it's on volume rates and obviously, we feel very good about that you could apply that commentary to every one of our core markets you can apply that commentary to our core products. So as we just said I mean, it's it's tough to comment specifically on your question, but when you bring out things like Europe , you bring up things like the Caribbean, whether it's from so on us.
Sourcing basis or on a product basis.
The the strength of the acceleration that we here in the demand environment really kind of applies to all of our core products in core markets.
Okay, I guess I was kind of more just getting too I'm asking your question if you know.
One of your competitors stack, you know putting more attractive prices in a particular market is its price you know the only deciding factor that they used to.
Take a cruise.
Hi, Felicia I mean, you were kind of used to this this is in an ongoing kind of normal operating.
Environment, we see it times different brands, so products either discounting for multiple reasons and.
You know I think there's a certain amount of value seekers, who will go after a lower price, but there's probably 80% of the custom is seeking specific product and we found they're willing to pay a higher price for the kind of experience and the.
Almost guarantee if the satisfaction for them and their families. So there is a difference between the brands and the products in the marketplace and I think for informed and educated customers. They realize that so so it's true that sometimes lower pricing can be temporarily disruptive but.
It passes fairly quickly and I think.
Long relationship with the travel partners is also something that's the strength the Royal Caribbean. They know our brands extremely well and they know how to <unk>.
Position the brands towards the right customers and we we feel we have a certain degree of confidence in terms of the quality about brands and products in the marketplace. So.
It is problematic at times, but it's something that we deal with quite frequently.
And I'm, assuming that your price integrity strategy that you've implemented several years ago week stay intact anyway, correct, absolutely yeah. Yeah. That's it that's been done. Thank you for that Felicia because it's it's been an important factor.
I think it is also something that distinguishes the cruise industry every company some quarters to better some quarters do worse, but the the fact that the the industry has resisted the temptation to merchandise itself coming back to Michael's point, where were we have.
Our brands in the brands.
Stand on their own.
And.
We don't we don't see the current situation is anything other than the same kind of thing we've done over time and yes. The price integrity strategy has been helpful and it's me the travel agent and the consumer most.
Both feel more confident about the.
What theyre doing when they buy their crews.
Thank you Jason just a quick housekeeping. So you know you said there was a slight impact from during your third quarter results. I was just wondering if you could quantify that and then what a like for like yields were in the third quarter and for that from here.
Sure. So on a on a like for like basis, our yields were up about 30 basis points for the third quarter.
So one there was little bit of rounding, but or the hurricane was a little bit over 10 basis points. Thomas Cook I said it was about 15 basis points and then there were.
Skewing, a little things there that impacted us in the quarter on the topline side.
But on a like for like basis, or our yields were up over 30 basis points.
Okay, and then and then had okay and everything Atlas because yeah. Okay.
Thank you you got it.
Your next question comes from a line of Harry Curtis with Instinet.
Good morning, everyone I've got a quick question on cost and then one on on.
[noise] yield the cost question relates to that vessel modernization and if you could.
Give us a sense of what inning you are in on the ship refurbishment process and specifically.
If it's further down the road, how many fewer dry dock days.
Might you have in 2020.
Yep, So I'll start off with easier question, which is 2020 I'm on the dry dock days side, we expect to have similar number of dry docks next year, though the timing of those dry docks.
Our little bit different depending on on the yard availability.
In terms of all the modernization side, you know as a we we continue to define opportunities.
To modernize our ships in ways in which we see aren't guess paying higher yields for ability to add more onboard revenue venues more state rooms.
Which is a.
Further improving our overall return profile. So I would I would expect that we will continue at least for the for the next several years.
Investing in modernizing.
Our our ships to the point, where it's Ralph is to make sure the their ships or are relevant.
To the current and future guest as well as making sure that we have as many activities for them to do that there are certainly willing to pay for and having more and more onboard revenue venues for them to be able to.
Experience and spend money on.
A very good and then the revenue related one is really kind of a cyclical question back in 2019, the gross yields were down.
14% in a in a rough rough economy, and you probably done some modeling I should we go into kind of a garden variety.
Slowed down and so my question is or how are you managed differently. How are you positioned as we go into 2020 or 2021 that that would would make you or at least topline somewhat less less vulnerable.
Sure Great question, Harry So I think there's there's a lot of elements.
To this which de risks us relative to the position we were in in a way to know nine first off we're you know we're much more globally diverse business.
Sourcing you.
But less than half of our gas from outside of the U.S. and.
And having that sales and marketing platform globally to be able to shift.
Sourcing around depending on the demand trends that we're seeing.
We're also are much more diverse set of brands and our brands really.
Lead in their different segments.
And so we're able to manage our our inventory and so forth based off of a different kind of platform of brands than than we had.
Before.
And then I would also lead into yeah, there's lots of consumer demographic trends that support our business that are very much in the a and the underlying support for cruising.
And so I think a combination of all those different things puts us in a much better posture and then of course, you consider a stronger balance sheet allows us to be.
To be better prepared at some point when there is a change in that and that business cycle. You of course, you picked an extreme.
Situation, which is the o. eight or nine period of time.
But we feel in the broader business our business model has been a position dwell too to be able to.
To ride through bumps in the night.
Very helpful. Thanks.
Your next question comes from a line of Greg that this guardian with Citi.
Hey, guys, it's actually Fred White men on for Greg You mentioned, a few times the strong results in China wondering if you could just talk about that market overall I mean, it looks like industry capacity. There is going to return to growth. After a few years declines when are you concerned in any way shape or form about what that might mean for yield to promo activity going forward.
Hi, it's a Michael we've.
We'd be done a journey in China's for sure we've been tenures in the market.
And we being quite thoughtful about the development of the distribution channels, we'll have a confidence that there's a market the.
We've done a lot of work and we made a lot of progress and my feeling quite comfortable with the progress that we've made with the distribution.
We more recently a couple of weeks ago announced in Shanghai that Oasis five would be going into Shanghai and 2021.
A spectrum into the China market this year and we've been very pleased with the results from spectrum emphases. So I think its it its is a big opportunity, sometimes supply and demand gets a little bit out of whack as we've seen in the past, but we really feel as if we've stuck the cost and treat.
To that like a marathon and we've we've built the distribution we built the brand and we feel this if we've got a good relationship with a travel partners and customers and so we're feeling we're feeling comfortable and relatively confident without China strategy.
Perfect. That's that's helpful. And then in Richard prepared remarks, I think he mentioned that over half of the hurricane impact was offset with improved trends in other areas. So it was that's 15 cents number that you guys cited is that a gross number or is that none of which were able to offset.
Now that that 15 cents is is a gross number and so if you just look at.
Our earnings for the year, we had guided before to midpoint of 960, we're guiding to a midpoint of $9 and 52 and a half sense.
Until that 15 impacted us and strengthen our business has helped us offset half of that.
Perfect. Thanks.
Sure.
Your next question comes from the line, Jamie Katz with Morningstar.
Hi, Good morning, you guys have just stuff that's all modification program on the cost side, but I'm wondering if there's a way to quantify the lift that you get one nice ships were trying to their fleet. Just so we came in better I think about the ROI that their ships are getting.
Oh, well, Jim I I think the way that that I would look at it is you know we wake up every day.
Trying to improve or or double digit ROI see number I'm in so clearly we would be looking to make investments that helped pull up all that ROI see number over time, we don't have an internal target per se or certainly an internally.
A public target.
But we certainly take on investments that.
Well, well move that that middle north.
I'm not Oh, we certainly wouldn't look for an investment that would be dragging onto that ROI see investment.
And by the way, but what we have.
Typically seen in.
In our modernization work is that the investments that we make.
I do better much better than we had expected them to do as they come online.
Okay, and then on an economic sort of global economic environment.
Process are you guys thinking about shifting your sourcing in any meaningful way next year that you'd care to share with us. Thanks.
Hi, its Michael I'm [noise].
We will always monitoring currency and macroeconomic conditions, we have a pretty disciplined process in place as it relates to.
Utilizing what we think is a significant global sales and marketing infrastructure. So we literally a moving our sourcing targets.
Obviously on an annual basis, but on a quarterly and monthly basis to a different teams in groups in different markets based upon currency in demand and other factors that may influence influenced the market. So I think where we're very focused on this I would say one of the key drivers of change is typically currency.
And when currencies, obviously going in the wrong direction, we're fundamentally a U.S. dollar company then of course that that that will shift to sourcing around I mean, we're fortunate that the American market as being the strongest has been and the demand out of the American market is is very good for us, but we're always.
Or the kind of a constant state to monitoring sourcing targets and achievements and currency and all of these different factors.
Your next question comes from the line of James Hardiman with Wedbush.
Good morning, Thanks for taking my call. So another quarter, obviously another in a in a growing list of headwinds that you've had to overcome this year.
Hi. My question is is I think about 2020 and sort of what we should be.
Adding back for lack of a better word obviously 15 cents from the Hurricane I think is 25 cents from from the Grand Bahamas Shipyard.
Maybe 20 cents from Cuba, I get to about 60 cents <unk> I guess first this is that a is that good math.
But then secondly, it seems like most of that is on the on the net cruise cost side and that you could potentially have a have a really good year on that line in 2020.
But then there was some commentary in the in the prepared remarks about increasing mix of celebrity and and silver see does that potentially and do some of that some of the benefits that you might get next year.
Okay, well you, there's certainly things that are clearly you're kind of more onetime ish, which is the the grand Grand Bahama incidents I'm, where we had to take oasis effectively out to out of operations for about a month you know the year. The Cuba thing a lot of that is is well see how that kind of sorts out overtime, we have been.
Able to.
Move our ships around two very attractive itineraries that now that we have a proper.
Period of time to sell those grew to sell in market those cruises.
We do expect to recover a lot of it you know the question. We will we recover all that impacts associated with that one thing I would say on the hurricane side, Yeah. We experienced there's always hurricanes that we experienced in most years. Yeah. This one was a.
Much more difficult because of how long it was out there for and the ports that into the.
Turning around ports that it that it impacted.
I My my comments around you a celebrity and Silversea in the mix is it's kinda twofold, one of which is obviously the the operating costs are those ships are higher as they are you more more of a premium product in the certainly silversea as a.
As the ultra luxury product Oh, we're in expedition, probably which has a higher operating costs, but I was real kind of I was really more pointing to the depreciation side in those ships have a higher cost per berth in so you'll just taking the you know in average depreciation rate may not be.
The way to model that I'm going forward.
Okay. That's helpful. And then secondly for me sort of on the use of capital side didn't see any any buyback in the quarter. I think you talked about being opportunistic in that in the back half of the year, obviously as we've talked about in previous question that the Capex guidance is up for next year I guess I'm just trying to figure out as it is.
It is it more when and if the share repurchase will resume or or is that taken a somewhat of a backseat and then on the interest side, maybe how to think about interest in 2020, there's a refinancing opportunity with some of the silver see that maybe some updated thoughts there.
Sure so on on the buyback side at the end of the third quarter. We were we were in a position where we aren't in a more comfortable debt to EBITDA range and of course, you're making sure that we continue to.
You behave like an investment grade credit and stay within our our our bookends I'm on a on a leverage standpoint is very important to us and so now that we've kind of reach that position. We will we have about $700 million left on our buyback program and that is somewhat so certainly something that will be in our consideration.
I'm going forward, but as we stated before we will be doing that on an opportunistic standpoint.
On the interest side.
The kind of core action that you pointed to which will reduce our interest expense I'm going forward.
If we if we if we do it will be for us to to want to take out the silver see bond in the first time rats really available to do is a in the first quarter of next year.
Got it thank you.
Your next question comes from a line of Tim Conder with Wells Fargo Securities.
Thank you I'm just wanted to follow up a little bit on the China distribution development. He can you talk about a little bit. How you are the mixes of charter versus call. It traditional travel agents versus direct kind of where you are.
Exiting this year versus maybe where you were three years ago and then the second question is just a Jason maybe cadence of what you're seeing a in the UK and Germany from from those sourced markets, Germany in particular through your two joint venture just did that the cadence of how those bookings.
And pricings going within your overall context that you gave on 2020.
Hi, Tim HM.
Kind of hesitant to give you percentages on the progress that we've made with the distribution.
I can tell you that if you look back a few years, we were heavily dependent upon the charter is probably 80, 85% about business was through the charters.
And you know we learnt a lot of lessons during that period, and that's really gave us the impetus to change the model.
We've made significant progress with that change. So if you look at our China business now, it's it's probably somewhere around 5% to 10% if that.
And we've really been I'm pleased with the developments about direct business, it's grown at a significant rates I mean direct in China and.
Utilization of web et cetera is high so we've been very pleased with the progress that we've made so you know the the landscape about distribution today versus a few years ago is remarkably different.
And Tim before answering your question I just wanted to make one <unk> a one clarifying points when I was talking about the 30 basis point improvement in the third quarter, what I was referring to was versus our guidance that our like for like was better by 30 basis points on than we had expected to in the third quarter.
Or like for like yield growth year over year about half a half I'm actually a little over half of that came from our like for like business doing better than we had expected.
So I just wanted to clarify that the like for like growth was very healthy.
In the in the third quarter and of course that excludes the silver sea port in Miami and perfect day.
But our our performance for the quarter was actually 30 basis points better than we had expected.
To be from from that business.
On the Germany question, you know certainly, Germany, going a little bit more of a challenging market I mean, fortunately for to be cruises demand for that brand has done very well.
There's been a little bit of pricing pressure, but overall, they're going to a <unk> there their expectations is to continue to perform.
As expected on a on a bottom line standpoint, there might be a little bits of softness on the revenue side, but it's it's very immaterial.
Okay, great. Thank you gentlemen.
Your next question comes from my line other Brandt Montour with JP Morgan.
Good morning, everyone. Thanks for taking my question. So obviously I'm starting on the 20 commentary I was hoping that maybe you could just.
They get a little bit first half of 2020 in the Caribbean more qualitative based ad basis.
Looking at the market, maybe in Cuba tonnage, we're executing tenants versus the markets aren't affected by that tonnage or.
During the longer cruise market versus a short the short kinds marketing any differently than along those lines would be helpful.
[noise] <unk>, so just kind of focusing on on the first half in your question on the Caribbean side, but what we talked about on the rate in volume base is very much supports what we're seeing in the Caribbean.
You Q1, which I pointed to in my remarks, I'm, Matt as little bit more headwind to it.
Because of the of the the bookings that relate to the Azamara and to silver C and those are higher yielding in those guestbook much further out.
So that we now away a little bit on our on our on our Q1, but do you look at the first half of the year lease back.
You know the environment for the Caribbean to be a very good which also.
Is <unk> point of view for the back half of 2020.
It's also worth pointing out that is Q, Cuba dropped a perfect. They came on line and I think that was more than compensated for.
The drop out of Cuba.
Got it helpful. Thank you and then on value I too I'm for an exciting a an announcement there.
Anything else you guys can help us out well for kind of thinking about that opportunity. Obviously, it looks like a pro forma smaller sort of absolute opportunity than coke, okay, but maybe give us some context around when you expect it to potentially open what's the total dollar investment and also sort of maybe what you can what you think the daily.
We're annual passenger capacity could eventually could that it could be able to handle that would all be anything that could be helpful. Thank you. So with that we're thinking late 2021 early 22 will open in front of ought to obviously or <unk> that the collection of perfect day in the collection of Beach club is very much connected.
So how do we see growth and volume for the Brandell brands as it relates to the itineraries it'll take the ships to those those destinations. So we have a.
Five year, and a 10 year view of of the kind of volume that will take into account I want to based upon the development of the Australian market.
And.
So the volume would be less than perfect. They cook, Okay, which I think its peak in a few years, we'll get to close to 3 million people going that the number of and at what to think reaches close to 750 800000 is is currently in our plans.
On the investment number I don't think we started really talking about investment number yet we're still working through the details of that and.
But we've we've we thought through obviously quite carefully the the kind of volume that we can take to these destinations. That's why we've really got to offerings perfect day in the Beach club Perfect Day is a lot of volume and Beach club is significant volume, but doesn't reach the same levels is perfect day.
Okay.
We have time for one more question.
And your last question comes from the line of sharing that Theo with William Blair.
Hi, I'll take a pity on you and ask one question.
I think one of the the big differences today versus during the last recession is how much you bundle the onboard spending with the initial purchase or alternatively have the their pre bucking availability prior to the cruise.
Just curious given that that kind of used to be they can area in the coal mine of any kind of slowdown how much of your onboard spending now is it's kind of pre buck before somebody that gets on the shop.
Okay.
So with.
Really delighted with a pre cruise revenue and a I think a level of sophistication with a marketing and the technology that we've got to really dramatically improved over the past several years certainly over the past decade.
I couldn't even imagine what that number was a decade ago, but the number today is significant and we've got just so much better across this whole spectrum of opportunities.
So were pleased with the progress that we're making with pre cruise and you know we I think we said before that the theory. That's been proven out is that for every dollar you got in pre cruise you'll get another 50 cents a onboard spend above normal guests, who just spends on board. So it's very positive environment, where.
Excited that in.
2020, we start bringing online new software that will improve even further as sophistication as it relates to pre pre cruise revenues. So.
It's a good environments and I think we made a lot of progress and Weve reached this level of sophistication and we're improving over the time, we've got new software coming and so I think we feel quite quite comfortable with it.
Is there a metric you chair on how much is pretty but at this point.
No I would say that it every single year, we're improving that metric significantly and we do think sharing that there'll be significant growth in that number I'm as as a the a new technology roles in 20 and 21.
Thank you you got it okay well. Thank you for your systems, Dorothy with the call today and we thank all of you for your participation and interest in the company.
Carl will be available for any follow up calls or questions you might have and we wish you all very good day taker.
Thank you, ladies and gentlemen that does conclude today's conference call you may now disconnect.