Following the acquisition of Prestige Cruise Holdings, the Company announces higher-than-expected profits for the first quarter.
Synergies for 2015 totaled $75 million.
The adjusted EPS outlook for the full year has been improved.
Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) (NCL Corporation Ltd., "Norwegian Cruise Line Holdings", has reported results for the quarter ended March 31, 2015 and has presented its outlook for the second quarter and for fiscal year 2015.
News from the first quarter of 2015
- Improvement in adjusted EPS of 17.4% to $0.27 on adjusted net income of $62.6 million.
- Adjusted Net Yield increased by 18.9% (19.9% on a constant currency basis) driven by the addition of higher premiums from the Oceania Cruises and Regent Seven Seas Cruises brands.
- Near-complete integration of Norwegian and Prestige Cruise Holdings (Prestige) operations. Ongoing efforts to identify synergies have resulted in $75 million in synergies for 2015 and $115 million for 2016.
First quarter 2015 results
“I am pleased to report strong earnings in our first quarter of operations following the merger of Norwegian and Prestige at the end of last year,” said Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings Ltd. “These results are even more impressive given the strong prior-year performance, particularly for the Norwegian brand, and the headwinds from currency exchange rates,” Del Rio continued.
In the first quarter of 2015, the Company generated higher-than-expected adjusted EPS of $0.27 on adjusted net income of $62.6 million. Earnings exceeded the Company's guidance ($0.20 to $0.24 per share) and benefited from lower-than-expected interest expense and improved net yield. In accordance with generally accepted accounting principles (GAAP), the Company recorded a diluted loss per share and a net loss of $0.10 and $21.5 million, respectively, primarily due to transaction and integration-related costs.
Adjusted net yield improved 18.9% (19.9% on a constant currency basis), primarily due to the acquisition of the Oceania Cruises and Regent Seven Seas Cruises brands in the fourth quarter of 2014. On a combined company basis, which compares current results to the prior year's combined results of Norwegian and Prestige, adjusted net yield decreased 0.7% and remained virtually unchanged on a constant currency basis compared to a strong first quarter of 2014 that included the benefit of the Norwegian Jade's one-month charter cruise during the 2014 Winter Olympics. Adjusted net income for the period increased 46.0% to $728.9 million as a result of the acquisition of the Oceania Cruises and Regent brands, as well as approximately one month of additional sailings from the Norwegian Getaway, launched in early 2014. Revenue for the period totaled $938.2 million, compared to the 664.0 million of 2014.
The adjusted net cost of cruising per capacity day, excluding fuel, increased 28.7% (29.3% on a constant currency basis), primarily as a result of the Prestige acquisition, while on a combined company basis it increased 5.6% (6.1% on a constant currency basis). The fuel price per metric ton decreased 18.2% to $526 from $643 in 2014.
The acquisition's incremental debt drove net interest expense to $51.0 million, up from $31.2 million; however, lower interest rates than anticipated resulted in lower expenses compared to the Company's guidance. The $30.1 million expense in other income (expenses) in 2015 was primarily attributable to a fair value adjustment on an interest rate collar for one of the Company's new vessels
Integration update
As a result of ongoing integration and synergy identification efforts, the Company has now identified $75 million in synergies for fiscal year 2015, of which $30 million are revenue synergies and $45 million are cost synergies. The Company had previously reported identifying $15 million in revenue synergies and $25 million in cost synergies, totaling $40 million for 2015. Of the incremental synergies, the Company is allocating $20 million to reinvestment in business initiatives that will further drive demand for the Company’s three brands, resulting in net synergies of $55 million for 2015.
“Identifying additional synergies has been the result of a significant collaborative effort between our integration team and all areas of the organization,” said Del Rio. “With the requirement that synergies not negatively impact the guest experience, or do so only positively, the organization has worked diligently to jointly identify significant incremental synergies. The net synergies will have an immediate impact on the 2015 financial results, while the amounts reinvested in business initiatives will benefit our revenue growth strategies beginning in 2016,” Del Rio continued.
For fiscal year 2016, the Company has identified synergies of $115 million, including the annualization of initiatives submitted in 2015 along with new initiatives. Of these, the Company expects to reinvest $40 million, resulting in net synergies of $75 million for the year.
Forecasts and guidelines for 2015
In addition to the results for the first quarter of 2015, the Company has published its guidance for the second quarter and for the full year 2015, along with the corresponding guidance. The adjusted net yield and adjusted net cost of cruising per capacity day, excluding fuel, are provided on both an audited currency basis and a combined company basis, which compares expectations to 2014 results including Prestige's results, assuming the acquisition had taken place at the beginning of 2014.
The Company's forecasts include the impact of continued anticipated fluctuations in exchange rates and the unscheduled dry-docking of the Norwegian Star in the second quarter for warranty-related repairs to its propeller system, which was not functioning properly following the dry-docking carried out in the first quarter.
“We are raising the midpoint of our guidance to reflect the improved first-quarter interest expense and net yield,” commented Wendy Beck, Executive Vice President and Chief Financial Officer of Norwegian Cruise Line Holdings Ltd. “We are maintaining our full-year net yield and net cost of cruise guidance, as the benefits of our incremental revenue synergies offset the headwinds from foreign exchange rates and the revenue impact of the Norwegian Star’s unscheduled drydock. Furthermore, the $20 million reinvestment in demand-boosting initiatives is offset by the incremental cost synergies identified in the quarter,” Beck continued.
| Second quarter of 2015 | Fiscal Year 2015 | |||||||||||||||
| Combined Company(1) |
Combined Company(1) |
|||||||||||||||
| Audited currency | Constant currency | Audited currency | Constant currency | Audited currency | Constant currency | Audited currency | Constant currency | |||||||||
| Adjusted Net Yield | 17.5 to 18.5% | 19.5 to 20.5% | 1.0 to 2,0 % |
2.5 to 3,5 % |
Approx. 17.5% | Approx. 19% | Approx. 1.5% | Approx. 3.0% | ||||||||
| Net cost of cruise per capacity day excluding fuel, adjusted | 23.0 to 24.0% | 23.5 to 24.5% | (2.25) to (3.25) % | (2.0) to (3.0) % | Approx. 23.5% | Approx. 24% | Approx. 2.75% | Approx. 3.25% | ||||||||
| BPA adjusted | $0.70 to $0.75 | $2.75 to $2.90 | ||||||||||||||
| Depreciation and amortization (2) | 80 to 85 million dollars | $340 to $350 million | ||||||||||||||
| Net interest expense | 50 to 55 million dollars | $210 to $215 million | ||||||||||||||
| Effect on adjusted EPS of a 1% change in adjusted Net Yield (3) | $0.03 | $0.10 | ||||||||||||||
(1) Combined Company compares 2015 estimates with the combined results of Norwegian and Prestige for the second quarter and full year 2014.
(2) Adjusted to exclude amortization of intangible assets from purchase accounting.
(3) Based on the midpoint of the forecasts.
The Company's expectations regarding fuel consumption and pricing, along with related guidance, are shown below.
| Second quarter of 2015 | Fiscal Year 2015 | ||
| Fuel consumption in metric tons | 170.000 | 685.000 | |
| Fuel price per metric ton, free of hedges | $380 | $385 | |
| Fuel price per metric ton, free of hedges | $540 | $525 | |
| Effect on adjusted EPS of a 10% change in fuel prices, net of hedges |
$0.01 | $0.03 | |
As of March 31, 2015, the Company had hedged approximately 74%, 53%, 37%, and 11% of its planned metric ton fuel purchases for 2015, 2016, 2017, and 2018, respectively. The average fuel price per metric ton for the hedged portfolio for the same periods is $493, $468, $416, and $386, respectively.
Future capital commitments are contractual commitments, including shipbuilding contracts and anticipated future capital expenditures for operations. As of March 31, 2015, anticipated capital expenditures were $1.1 billion for the remainder of 2015, and $900 million and $1.0 billion for each of the fiscal years ended December 31, 2016 and 2017, respectively, of which export credits are financed for expenditures related to shipbuilding contracts in the amount of $700 million for the remainder of 2015, $500 million for 2016, and $600 million for 2017.
