Viking's free cash flow a cushion or acquisition facilitatorViking's free cash flow a cushion or acquisition facilitator

As Viking builds free cash flow, there are no current plans for a dividend or share buybacks. The company prefers to keep a cushion against volatility and have the flexibility to opportunistically acquire.

For now though, rather than M&A, Viking's focused on greater penetration in its core English-speaking markets, growth from newbuilds on order and Asia expansion.

Single-brand clout

Chairman/CEO Torstein Hagen underscored Viking's strength as a single-brand company and sounded caution on acquisitions that would 'scatter your energy' — though Viking could acquire at some point.

The frequently asked question about uses for free cash flow came up during Tuesday's third quarter earnings call as Viking's balance sheet improves and leverage declines.

A hefty cash reserve acts as a buffer, particularly in today's unpredictable economic environment, providing a 'strong financial safety net that ensures we have stability and flexibility, CFO Leah Talactac said.

Market down on Ukraine-Russia concern

Speaking of undertainty, the Dow Jones Industrial Average tumbled more than 300 points Tuesday as Ukraine fired missiles into Russia, raising fears of that conflict escalating.

VIK shares were off 1%, at $44.90, immediately following the company's earnings call.

Related:Viking swings to Q3 profit, is well-booked for 2025 at higher pricing

An acquisition if ...

Viking isn't currently contemplating a dividend or share buybacks, however they could be an option in the future.

'One of our top priorities is to reinvest the cash in the business so we can generate strong returns,' Talactac said. 'Also, a strong cash balance makes sure we are ready for an acquisition if the right opportunity presents itself.

'... Our guiding principles when it comes to investing in the business or any future acquisitions is that it's scalable, margin accretive and complementary to the brand/within the brand ethos.'

Asked if Viking could take a more conservative stance on leverage than has been traditional in the cruise industry, Talactac said the company hasn't set any target for itself and 'as we take advantage of opportunities, our leverage could go up or down.'

Strong orderbook

Recently Viking exercised options for four additional ocean ships, with two each scheduled for delivery in 2031 and 2032.

An analyst questioned if growth opportunities are still much better in the ocean and river cruise segments versus opportunities outside the core business?

'Our primary focus is taking delivery of our ships on order between now and 2030. We have a pretty attractive growth profile ... ' Talactac said, adding there's opportunity to increase penetration in Viking's current addressable market: English-speaking North America, the UK and Australia/New Zealand.' She noted cruise penetration in the US is still only 4%.

Related:Viking firms options for two more ocean newbuilds in 2029

As well, the company's growing its China business and sees openings to expand in other Asian markets.

'But we do have a strong and trusted brand, and our past guests would be quite happy to support any meaningful new products as well as attracting new to brand [customers],' Talactac said.

Business models to avoid?

Having cash available potentially for mergers and acquisitions, are there any business models Viking would shy away from?

'It's what the brand can support and what's complementary to the brand,' Talactac said. '... Whatever we may acquire or may expand our products to has to be within the brand framework.'

Hagen chimed in: 'We may look at a thing or two but we are so sure the one brand we have is one of the reasons for our success so it will take a lot of effort to go outside that ...

'The moment you start to diversify, you scatter your energy, so we should be very careful about that.

'At some time we'll do it,' Hagen continued, 'but I think we'll be very careful.'