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NCLH 1Q 2015 CONFERENCE CALL NOTES

Takeaway: While positive, the $35m increase in synergy target wasn't completely a surprise. It had been in mgmt's back pocket to mask higher costs.

NCLH 1Q 2015 CONFERENCE CALL NOTES - NCLH1

 

NCLH 1Q 2015 CONFERENCE CALL NOTES - nclh0

 

 

CONF CALL

  • 6.7% average increase in beverage prices
  • $1 in net yields translates into $15m in bottom line
  • Market-to-fill strategy:  172 days booked (154 days in Q1 2014).  39% more revenue on the books for 2016 vs 2015 at same time last year
  • Freechoice style promotion resulted in record-breaking Wave demand for Norwegian
  • Every quarter in 2015 higher load factor than 2014.  2016 load factor has doubled what it was in 2015 at same time (Norwegian brand only)
  • German/UK sales offices joined forces in Prestige acquisition
  • "Incremental Reinvestment efforts: crucial to ???? customers
  • Norwegian Escape:  booked better 10x than Getaway.
  • Oceania Siriena: record booking days
  • Lower interest expense:  lower than expected interest rates and better group pricing on credit facilities due to better leverage metrics
  • 1Q higher costs: receipt of technical parts and increased marketing expense
  • NCC:  $9.1m benefit on mark-to-mark contingency (contingent of $50m of Prestige shareholders) 
  • 1Q: $401 at the pump oil price (-39% YoY)
  • Norwegian Star drydock in April - repairs under warranty but lost revenue from canceled 15 day Panama sailing
  • 2015 NCC guidance: unchanged as $20m 'reinvestment' offset better cost synergies
  • Q2 2015 capacity:  29% in Caribbean, 27% in Europe, 12% Alaska, 4% Asia/Africa/Pacific/World Cruise
  • Final tally of synergies will be during Q2 conf call

 

Q & A

  • Why was net yield FY 2015 guidance not raised?  Combination of things: Star drydock, FX hit later
  • Sees prices/diem going higher in 2016
  • When Q2 integration efforts are done, they will do a China study group and expect to complete by end year.
  • "Incremental reinvestment costs ($20m in 2015, $40m in 2016)" - sales force/marketing efforts 
    • No benefits baked into 2015/2016 guidance
  • By 2017, EPS would hit $5 (had included $50m synergy target in 2016)
    • Now additional $25m net synergies boost 
    • Feel stronger today $5 is achievable
  • Revenue synergies:  2/3 synergies onboard yield, 1/3 ticket synergy.  More opportunities were in ticket.
  • 1Q 2015 synergies:  75% in ticket (more towards Norwegian).  25% in onboard synergies (skewed towards Prestige)
  • Deferred revenue of $21m:  $18-19m remaining for next few quarters.
  • Fuel guidance: MGO fuels costs go up in Q3 but will go back down in Q4
  • Market color:  Pretty steady across all regions.  A little weakness in exotic itineraries in Oceania (Africa/Asia). Alaska doing well. Escape doing well.
  • Increase in beverage prices:  have not seen a decrease in consumption
  • FX sensitivities: $0.003 euro, Canadian $0.003, Australia $0.002 
  • Feel there is more opportunities on synergies
  • $27m headcount reductions (10% of payroll) for 2016 ---pretty much done there in cutting costs
  • Will not eliminate close-in discounting. Applaud RCL for taking that step
  • In Q4 2015, could start to pay down some debt or share repurchase
  • Weighted cost of debt: 3.7%
  • Share repurchase has higher priority than issuing a dividend

[UNLOCKED] INITIAL CLAIMS | STICKING THE LANDING

Takeaway: The labor market finished strong in April. The sum of initial claims came in at the lowest level since 1996 and is almost tied with 2000.

Editor's Note: Below is an excerpt from a detailed breakdown of this morning's initial claims data from Josh Steiner and the Hedgeye Financials team. If you're an institutional investor and would like to setup a call with Josh or Jonathan Casteleyn or trial their research, please contact sales@hedgeye.com

 

APRIL: STRONG....& LONG:

April finished just as strong as it started. As we have pointed out in the last few weeks and show in the first chart below, in terms of cumulative initial claims April 2015 has been the best April since 1996 with the small exception of 2000 (with which it's almost tied). We now look to the jobs report on Friday to see if claims strength with show up in the overall employment situation.

 

One thing to note about tomorrow's NFP report is that it will have 5 weeks in it vs the normal 4. The BLS corrects for this, but in years when an April with 5 weeks follows years with a 4-week April data problems have tended to ensue. Remember that the establishment survey measures from the weeks of the 12th to the 12th. As such, it's possible that there will be an upward bias to tomorrow's number on the order of ~25% owing to the inclusion of the additional week. We continue to rely on claims as our primary indicator of the Labor market's health.

 

In the second chart below, oil prices have made steady progress upward of late. Given that movement, the spread between the indexed basket of claims in energy-heavy states and the U.S. as a whole tightened week over week from 28.1 to 26.6.

 

[UNLOCKED] INITIAL CLAIMS | STICKING THE LANDING - 49

 

[UNLOCKED] INITIAL CLAIMS | STICKING THE LANDING - Claims18 normal

 

The Data

Initial jobless claims rose 3k to 265k from 262k WoW, as the prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4.25k WoW to 279.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -10.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -11.6%

 

[UNLOCKED] INITIAL CLAIMS | STICKING THE LANDING - Claims2 normal

 

[UNLOCKED] INITIAL CLAIMS | STICKING THE LANDING - Claims3 normal


INITIAL CLAIMS | STICKING THE LANDING

Takeaway: The labor market finished strong in April. The sum of initial claims came in at the lowest level since 1996 and is almost tied with 2000.

Below is the detailed breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

APRIL: STRONG....& LONG:

April finished just as strong as it started. As we have pointed out in the last few weeks and show in the first chart below, in terms of cumulative initial claims April 2015 has been the best April since 1996 with the small exception of 2000 (with which it's almost tied). We now look to the jobs report on Friday to see if claims strength with show up in the overall employment situation.

 

One thing to note about tomorrow's NFP report is that it will have 5 weeks in it vs the normal 4. The BLS corrects for this, but in years when an April with 5 weeks follows years with a 4-week April data problems have tended to ensue. Remember that the establishment survey measures from the weeks of the 12th to the 12th. As such, it's possible that there will be an upward bias to tomorrow's number on the order of ~25% owing to the inclusion of the additional week. We continue to rely on claims as our primary indicator of the Labor market's health.

 

In the second chart below, oil prices have made steady progress upward of late. Given that movement, the spread between the indexed basket of claims in energy-heavy states and the U.S. as a whole tightened week over week from 28.1 to 26.6.

 

INITIAL CLAIMS | STICKING THE LANDING - Claims20 normal

 

INITIAL CLAIMS | STICKING THE LANDING - Claims18 normal

 

The Data

Initial jobless claims rose 3k to 265k from 262k WoW, as the prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4.25k WoW to 279.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -10.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -11.6%

 

INITIAL CLAIMS | STICKING THE LANDING - Claims2 normal

 

INITIAL CLAIMS | STICKING THE LANDING - Claims3 normal

 

INITIAL CLAIMS | STICKING THE LANDING - Claims4 normal

 

INITIAL CLAIMS | STICKING THE LANDING - Claims5 normal

 

INITIAL CLAIMS | STICKING THE LANDING - Claims6 normal  1

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


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Keith's Macro Notebook 5/7: Bonds | Euro | Asia

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


Keith's Daily Trading Ranges [Unlocked]

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BEARISH TRENDS

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BABA: IPO Yo-Yo (F4Q15)

Takeaway: Marked improvement off a weak F3Q15. The mobile debate remains in focus; while the setup gets progressively worse starting F2Q16.

KEY POINTS

  1. 1Q15 = MARKED IMPROVEMENT: China Retail revenue growth accelerated off F3Q15, despite a slide in total GMV growth to 40% y/y (vs. 49% in the prior quarter).  Commission revenue growth held steady from the prior quarter off a rebound in Tmall Mix (y/y change); suggesting the company may be making improvement in Tmall uptake on the mobile platform.  Marketing improved off a moderating y/y decline in desktop take-rates.  The biggest surprise from the quarter (for us) was the surge in average spending, which was up 6% y/y on a TTM basis.  We can’t explicitly calculate the quarterly trend off the reported data, so we’re not sure if this is the beginning a of positive inflection, or a mirage from the GMV strength earlier in F2015.
  2. THE MOBILE DEBATE: Can mobile monetization rates catch up to desktop, particularly on the advertising side since?  We believe much of the improvement on mobile take-rates has to do with the migration of consumer traffic (ad click volume) to mobile.  Management suggested as much on the call, but also spoke to improving demand from merchants for mobile advertising.  The latter is encouraging, but we have a hard time believing that mobile will approach desktop rates that are more than double that of mobile.  Traffic has been the predominant driver of growth, and mix is already over 83% of active shoppers (vs. 64% in the prior year).  See note below for detail.
  3. IPO YO-YO: BABA beat top-line estimates by 5% in F2Q15; consensus estimates rose in response.  On the F3Q15 print, BABA missed by -5%, then estimates came down significantly.  BABA just beat F4Q15 revenues by 4% on reduced consensus estimates, and we’re expecting consensus revenue to shoot back up in response.  Note that the prior estimate cut following the F3Q15 release was concentrated into F4Q15 and F1Q16, so if estimates do rise as we expect, the setup will get progressively worse starting in F2Q16.    

BABA: IPO Yo-Yo (F4Q15) - BABA   Tmall GMV   F4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Tmall vs. GMV F4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Avg GMV 4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Mobile Mix F4Q15

BABA: IPO Yo-Yo (F4Q15) - BABA   Marketing vs. Active Buyer 4Q15

 

BABA: The Mobile Debate

03/04/15 10:34 AM EST

[click here]

 

 

Let us know If you have any questions or would like to discuss in more detail.

 

Hesham Shaaban, CFA

@HedgeyeInternet

 


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