NCLH 1Q 2014 REPORT CARD

In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance

 

 

OVERALL:

  • MIXED:  A larger than expected share repurchase program and better fuel management offset weaker yield guidance. NCL may be out of the woods until competition heats up with RCL's Quantum in Q4. 

 

RECENT MANAGEMENT COMMENTARY 

Bookings outlook:

  • BETTER:  Bookings have picked up since Triumph lap in mid-Feb.  Here is the bookings outlook by geography:
    • Europe (Baltic/Canary Islands/Med): highly favorable
    • Hawaii:  on par 
    • Canada/New England:  heavily booked 
    • Caribbean:  low; still has opportunity
  • PREVIOUSLY:  Thinks they lost a little bit of ground but not anything to be concerned.  Is comfortable with each of the quarters.

Capital allocation:

  • BETTER:  While the repurchase program was not really a surprise, the magnitude was.  A $500m share repurchase program accounts for 7% of outstanding shares.  Will they buy Genting shares?
  • PREVIOUSLY:  Shorter-term solution or answer would be to do some stock acquisition.  If the selling shareholders are still in the puzzle,could marry with that at the appropriate discounts or whatever. And then, at some point, start a dividend (probably would be at least a year later than the first step with the share repurchase).

Caribbean/Bermuda:

  • WORSE:  Aggressive pricing is overpowering improved bookings.  Cautiously optimistic on the Caribbean in 2015 as capacity growth will be minimal.
  • PREVIOUSLY:  
    • There's a lot of capacity in Miami, but it's no different than anything else
    • More focused today on Bermuda and optimizing that opportunity in that premium itinerary.

Promotional:

  • WORSE:  Higher promotional environment led to a reduction in net yield guidance
  • PREVIOUSLY:  Environment has remained in a promotional state

Getaway:

  • BETTER:  Continued improvements in fuel efficiencies (saved $5-6m).  Premiums over core fleet remain in double digits, although at the expense of lower prices across the fleet.
  • PREVIOUSLY:  We've been having a consistent performance in the Miami market

Alaska: 

  • SAME:  Alaska pricing is growing in the low single digits
  • PREVIOUSLY:  Some softness in Alaska where the introduction of a third ship for the first time since 2009 was coupled with a unique itinerary
    • Feel pretty good about Alaska

Europe:

  • BETTER:  Pricing is up double digits and significantly higher loads in Europe.  But mgmt attribute it to very easy comps.
  • PREVIOUSLY:  Feel pretty good about Europe

Fuel efficiency: 

  • BETTER:  Fuel expenses and consumption beat in 1Q.  Fuel expenses were lowered by almost $20m for the year.
  • PREVIOUSLY:  
    • Expect consumption savings to increase as further energy saving initiatives are implemented and NCLH take delivery of newer more fuel-efficient ships.
    • Have received exemptions from the appropriate regulatory agencies to burn high-filter bunker fuel until installed. These scrubbers carry a very attractive return on investment and reduce our sulfur emissions to comply with the upcoming eco fuel Standards.

Cost cuts:

  • SAME:  Marketing G & A as a % of gross revenue fell 3.6% points to 12.6%.
  • PREVIOUSLY:  Leveraging SG&A, with bringing on these additional ships and their being roughly double the size of NCLH's existing fleet.

Organic pricing/ comp fleet:

  • WORSE:  Core fleet pricing in the Caribbean fell more than mgmt expected
  • PREVIOUSLY:  Very positive

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