Third-quarter adjusted EPS improves 22% to $1.35.
The company's strong pricing structure drives an industry-leading 4.7% increase in adjusted net yield.
The company takes possession of the Norwegian Escape.
Norwegian Cruise Line Holdings Ltd. (Nasdaq: NCLH, together with NCL Corporation Ltd., "Norwegian Cruise Line Holdings", "Norwegian" or "the Company") has reported its results for the quarter ended September 30, 2015, and has provided its outlook for the fourth quarter and for the full year 2015.
Top news stories from the third quarter of 2015
- Adjusted EPS growth of 22% to $1.35 on adjusted net income of $311.1 million.
- Adjusted net yield increased by 2.2% on a combined company basis, or 4.7% on a constant currency basis, driven by higher prices during the quarter. Net yield increased by 19.8% on an audited currency basis.
- Adjusted EBITDA increased by 37%, reaching $447.8 million compared to the previous $326.7 million.
Third quarter 2015 results
“The continued momentum of our revenue enhancement strategies has boosted net yield by approximately 5%, solidifying our quarterly revenue,” said Frank Del Rio, President and Chief Executive Officer of Norwegian Cruise Line Holdings. “Most impressively, net yield was driven solely by organic growth, demonstrating that strong sales growth is not solely attributable to adding new ships to our fleet.”
The Company generated adjusted net income of $311.1 million, or $1.35 per share. Adjusted EPS increased 22% year-over-year, exceeding the Company's guidance thanks to strong net yield. On a GAAP basis, net income was $251.8 million, or $1.09 per share, compared to $201.1 million, or $0.97 per share, in the prior year.
net yield improved 19.8% (22.7% on a constant currency basis), primarily due to the acquisition of Prestige in the fourth quarter of 2014. On a combined company basis, comparing current results with the combined results of Norwegian and Prestige for the prior year, net yield increased 2.2% (4.7% on a constant currency basis), reflecting higher prices in the quarter driven by strong Caribbean, Bermuda, and Alaska itineraries, partially offset by weaker Eastern Mediterranean itineraries. Adjusted net revenue for the period was $978.2 million compared to $694.4 million in 2014, a 40.9% increase primarily attributed to the acquisition of Prestige.
The adjusted net cost of cruising, excluding fuel per capacity day, increased by 30.5% (32.1% on a constant currency basis), primarily as a result of the acquisition of Prestige, while on a combined company basis this increase was 6.4% (7.8% on a constant currency basis), mainly due to planned marketing expenditures and some discretionary costs for onboard maintenance and improvements. The fuel price per metric ton for the Company, free of hedges, decreased by 11.7% (US$566 compared to US$641 in 2014).
Net interest expense increased to $49.8 million from $32.3 million previously, as a result of increased debt stemming from the acquisition of Prestige.
The Company repurchased 83,396 shares during the quarter at an average price of $55.94, pursuant to its three-year $500 million share repurchase program authorized in April 2014. As of September 30, 2015, $413 million remained available for share repurchases under this program.
Outlook for the year 2015
As a result of strong net yield performance, the Company has increased its net yield for fiscal year 2015. An increase in the net cost of the cruise per day, excluding fuel, is expected due, as previously mentioned, to the recognition of certain expenses. As a result of these changes, the Company has lowered its margin and raised the midpoint of its adjusted EPS guidance for fiscal year 2015, which is now between $2.85 and $2.90.
“Thanks to the harmonization of revenue management strategies across our three brands, we have been able to broaden our booking curve, which has allowed us to increase prices, particularly for the Norwegian brand,” said Wendy Beck, Executive Vice President and Chief Financial Officer of Norwegian Cruise Line Holdings. “This stronger pricing has resulted in robust revenue growth (approximately 27% in 2015), achieving a compound annual growth rate of over 40% since our initial public offering in 2013,” Beck added.
Outlook for 2016
The delivery of the Norwegian Escape in October marks the culmination of the latest chapter in the Company’s carefully planned newbuild program, with annual deliveries through 2019. In 2016, the Company will add two new ships to its fleet. Sirena will join Oceania Cruises in March and sail for the first time in late April, following a multi-million dollar, 35-day refurbishment and modernization. Seven Seas Explorer will join the Regent fleet in the third quarter.
“The initiatives we have undertaken are giving us renewed momentum, reflected in a strong booking base. This, coupled with strong revenue growth from our current fleet and upcoming new ship additions, positions 2016 as a pivotal year,” said Del Rio. “We have a clear path to significant revenue growth and are confident we will achieve our 2017 earnings per share target of $5.00 and further increase our return on invested capital, which is already among the best in the industry, to 14% in 2018.”.
Forecasts and sensitivities
In addition to the third-quarter results, the Company has published its guidance for the fourth quarter and for fiscal year 2015, along with the corresponding sensitivity analyses. The net yield and adjusted net cruise cost forecast, excluding fuel per capacity day, 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.
| Fourth quarter of 2015 | Fiscal Year 2015 | ||||||||||||||
| Combined Company(1) |
Combined Company(1) |
||||||||||||||
| Audited currency base | Constant currency | Audited currency base | Constant currency | Audited currency base | Constant currency | Audited currency base | Constant currency | ||||||||
| Adjusted net yield | Approx. 13.75% | Approx. 14.75% | Approx. 4.5% | Approx. 5.5% | Approx. 17.75% | Approx. 19.5% | Approx. 1.75% | 3.25 to 3.5% | |||||||
| Adjusted net cruise cost, excluding fuel per capacity day | Approx. 15.0% | Approx. 17.0% | Approx. 4.0% | Approx. 5.0% | Approx. 23.5% | Approx. 24.75% | Approx. 2.75% | Approx. 3.5% | |||||||
| BPA adjusted | $0.45 to $0.50 | $2.85 to $2.90 | |||||||||||||
| Depreciation and amortization(2) | $90 to $94 million | $340 to $345 million | |||||||||||||
| Net interest expense | $53 to $57 million | $205 to $210 million | |||||||||||||
| Effect on adjusted EPS of a 1% change in adjusted Net Yield (3) | 0,03 $ | 0,03 $ | |||||||||||||
(1) Combined Company compares 2015 estimates with combined results for the fourth quarter and full year 2014.
(2) It is adjusted to exclude the amortization of intangible assets related to the acquisition of Prestige.
(3) It is based on the midpoint of the forecasts.
The Company's expectations regarding fuel consumption and price, along with the corresponding sensitivity studies, are shown below.
| Fourth quarter of 2015 | Fiscal Year 2015 | ||
| Fuel consumption in metric tons | 185.000 | 670.000 | |
| Fuel price per metric ton, free of hedges | 380 $ | 435 $ | |
| Fuel price per metric ton, free of hedges | 535 $ | 545 $ | |
| Effect on adjusted EPS of a 10% change in fuel prices, net of hedges | 0,02 $ | 0,02 $ | |
As of September 30, 2015, the Company had hedged approximately 59%, 59%, 54%, 42%, and 8% of its forecasted fuel purchases in metric tons for the remainder of 2015, 2016, 2017, 2018, and 2019, respectively. For these same periods, the average fuel price per metric ton in the hedged portfolio was $475, $452, $392, $354, and $333, respectively.
Future capital commitments are contractual commitments, including shipbuilding contracts and anticipated future capital expenditures for operations. As of September 30, 2015, anticipated capital expenditures were $900 million for the remainder of 2015, and $1 billion and $1.1 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 $600 million for the remainder of 2015, $500 million for 2016, and $600 million for 2017.
Company news and other important updates
International expansion and entry into the Chinese cruise market
In September 2015, the Company officially opened its long-awaited sales and marketing office in Sydney, Australia, its first in the Pacific region. This office represents the Company’s three brands and includes a Sydney-based service center to support partners and customers in Australia and New Zealand.
On October 12, 2015, the Company announced its plans to introduce in 2017 the first ship built specifically for the Chinese market. This new ship, currently under construction, will be the second in Norwegian Cruise Line's Breakaway Plus class and will be designed with a level of customization that goes beyond mere material design, providing a high-quality level of service, cuisine, entertainment, and overall experience that will undoubtedly satisfy the unique vacation preferences of Chinese customers.
These expansion efforts are part of a multi-layered strategy. First, there is the announced return of Norwegian Cruise Line to Asia (for the first time since 2002). Sailing from Singapore and Hong Kong, Norwegian Star will offer 11- and 14-night cruises visiting a diverse and exciting array of famous Asian ports that typically appeal to Western customers. Second, in 2017, the first ship built specifically for the Chinese market will be launched. It will offer the highest level of customization to the region's customers and will be the most innovative ship built to date exclusively for this market. Third, the Company has announced the opening of sales and marketing offices in Hong Kong, Shanghai, and Beijing, serving all three brands. These offices are staffed by a dedicated leadership team focused on ensuring the success of local travel agency partners, which is critical to the Company's expansion. Finally, the Company has announced a coordinated initiative across its three brands to attract Chinese travelers to its cruises. This will involve increasing the number of Mandarin-speaking staff and offering menus and onboard entertainment tailored to Chinese tastes on all voyages of the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands worldwide.
Delivery of the Norwegian Escape
On October 22, 2015, Norwegian Cruise Line took delivery of the Norwegian Escape, the first ship in the Breakaway Plus class. With a capacity of approximately 4,200 passengers, it is the company's largest and most innovative ship, boasting a host of exclusive and groundbreaking features, including Jimmy Buffett's first Margaritaville at Sea , two restaurants by Iron Chef José Garcés, and The Cellars, a wine bar curated by the Michael Mondavi family. Other proven concepts include the largest luxury suite resort, The Haven by Norwegian, and popular public areas such as The Waterfront and 678 Ocean Place. Following several inaugural ceremonies and a transatlantic crossing, the Norwegian Escape will depart on November 14 from its homeport of Miami to begin the first in a series of 7-night Eastern Caribbean cruises.
Conference Call
The Company has scheduled a conference call for Tuesday, November 3, 2015, at 10:00 a.m. (U.S. Eastern Standard Time) to discuss its third-quarter 2015 results. The live webcast link will be available on the Company’s Investor Relations website at www.nclhltdinvestor.com. A recording of the conference call will also be available on the website for 30 days following the call.
