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New ships drive doubling of Norwegian profit

New ships like Norwegian Getaway boosted Q2
Norwegian Cruise Line doubled its adjusted profit to 58 cents per share in the second quarter, the first with both Breakaway ships in service, and maintained its guidance for the full year. However, the Q3 outlook was disappointing.

Adjusted net income was $121.1m, up from $60.2m, or 29 cents EPS a year ago.

On a GAAP basis, diluted EPS and net income were 54 cents and $111.6m, respectively.

Net yield was up 3.3%, or 3% in constant currency, due to higher occupancy, higher on-board and other revenue and benefits from cost-reduction initiatives.

Revenue rose 18%, to $765.9m from $644.4m. Adjusted EBITDA increased 44%, to $219.4m.

Norwegian president and ceo Kevin Sheehan noted that having both Breakaway ships in service, along with Norwegian Epic, means that now more than a third of the company's capacity consists of 'newer, premium, earnings-rich ships' which contributed to the doubled profit.

Lower fuel expense helped EPS by about 3 cents per share, and net cruise costs excluding fuel were down 2.7%, at the lower end of guidance, UBS Investment Research said in a note.

The 3% constant-currency net yield increase was below the up 3.6% expectation and at the lower end of guidance of up 3% to up 3.5%.

'So the only good news for EPS is lower fuel,' UBS analyst Robin Farley told investors. She said gross ticket yields were flattish to down slightly, suggesting a lower air/sea mix or commissions.

Capacity days rose nearly 20% with the addition of Norwegian Getaway and Norwegian Breakaway in January 2014 and April 2013, respectively, partially offset by the planned drydock of Norwegian Jewel.

Norwegian expects third quarter EPS in a range of $1.05 to $1.10, under the consensus forecast of $1.15, and held its full year EPS projection at $2.20 to $2.35. The consensus is $2.28.

Sheehan said the company is pleased to reiterate full year earnings guidance given the current promotional environment.

Yet, as UBS noted, Q3's guided net yield increase of up 2.25% to 2.75% compares to UBS's 4% expectation and the 3.7% consensus, and Royal Caribbean's Q3 guidance of up approximately 4%.

The brokerage put the implied Q4 net yield increase at up 3% to 4.5%, compared to UBS's 3.9% expectation and the 3.3% consensus, even though the quarter has a greater Caribbean mix, 60%, compared to Q3's 23%. Year over year, overall Caribbean capacity is up nearly 100% for Norwegian in Q3 compared to up 23% in Q4, Farley said.