Viking continues contrarian: No guidance nor striving for investment grade
Viking's first earnings call since going public opened with CEO Torstein Hagen reiterating what makes the brand different then showed that contrarian streak will continue in its financial dealings.
May 29, 2024
The company isn't planning to issue guidance in the same manner other cruise operators do, or pay dividends, is 'comfortable' with its leverage and not striving for an investment grade rating.
Instead of giving specific guidance, Viking shared charts tracking advance bookings by month and how pricing has changed. For both the ocean and river segments, bookings and rates are up on higher capacity.
Historically, Viking has been able to boost pricing by mid to high single digits, EVP Finance Linh Banh said.
91% of 2024 ocean capacity is sold, at higher pricing
For its ocean business, 2024 advance bookings to date are 16% higher than the 2023 season at the same point in time last year. Operating capacity will increase by 7%, and 91% of 2024 capacity is sold. 2024 advance bookings per passenger cruise day are averaging $675, compared to $633 for 2023 at the same point in time last year.
2025 bookings are 30% higher than the 2024 season at the same point in time last year. Operating capacity will increase by 17%, and 47% of 2025 capacity is sold. 2025 bookings per PCD of $750 compare to $662 for 2024 at the same point in time in 2023.
92% of 2024 river capacity booked, at higher pricing
For Viking's river business, 2024 advance bookings to date are 13% higher than the 2023 season at the same point in time last year. Operating capacity will increase by 4%, and 92% of 2024 capacity is sold. 2024 advance bookings per PCD of $772 compare to $691 for 2023 at the same point in time last year.
2025 river bookings are 19% higher than the 2024 season at the same point in time in 2023. Operating capacity will increase 8%, and 30% of 2025 capacity is sold. 2025 bookings per PCD of $952 compare to $871 for 2024 at the same point in time in 2023.
Why not give guidance?
Since Viking books so far ahead and doesn't have much onboard revenue to speak of, some analysts had anticipated the company could issue guidance with higher conviction than others and expressed surprise it's not sharing visibility in that way.
But Hagen said Viking is focused on the long term and argued booking curves give 'much more information than you're likely to get from others' along with segment information (ocean and river), 'so we're quite transparent.'
'Booking curves are facts'
Banh chipped in that Viking likes to stay 'flexible and nimble' and once a company gives guidance, some of that is lost.
She added: 'Booking curves are facts.'
BB rating 'good enough'
As Viking reported today, net leverage declined from 3.8x as of Dec. 31 to 3.4x as of March 31. The 3.4x is 'comfortable,' Hagen said. 'We're generating a fair amount of cash so that could further go down if nothing more happens, and that would be fine, too.'
This month Standard & Poor's upgraded Viking's corporate rating to BB- from B+.
'We never had any ambition to be investment grade,' Hagen said. 'A BB rating is not a bad rating to have,' and the financing the company gets with BB is 'good enough.'
S&P defines BB as 'speculative grade, less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.' It is one notch below BBB, investment grade.
No dividend or share buyback plans
For the time being, Viking has no plans to pay a dividend or buy back shares.
'My family is a large shareholder. We can't see much better investment opportunity than we have in this company,' Hagen told analysts.
'We have a good base to expand the business, but it should be profitable expansion, not expansion for expansion's sake. We have the benefit of a great orderbook at good prices and we combine that with a balance sheet that is among the best in the industry, and I think we're in a good position.'
VIK shares were trading down more than 2% at midday.
Yahoo Finance reported 'most US stocks waded in the red on Wednesday, after a spike in Treasury yields unsettled investors.'
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