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Norwegian quadruples Q1 profit on new-ship premiums, OKs share buyback

'Impressive earnings power' from new ships like Norwegian Getaway
Higher ticket and on-board revenue for its new ships pushed Norwegian Cruise Line to a four-fold profit hike in the first quarter, and the company affirmed its outlook for the year while also announcing a $500m share buyback program.

Adjusted earnings per share rose to 23 cents, a penny higher than Wall Street's expectation and up from 6 cents EPS in Q1 2013. Adjusted net income was $49.6m or, on a GAAP basis, $51.3m or 24 cents EPS, up from $12.9m a year ago.

Net yield rose an industry-leading 3.8% (3.9% in constant currency), while adjusted EBITDA increased nearly 40%, to $193.3m, a 200-basis-point improvement.

Revenue was $664m, a nearly 26% spike from the $527.6m a year ago.

Norwegian president and ceo Kevin Sheehan attributed the strong results to the 'impressive earnings power' of new ships, including double-digit premiums over other Norwegian ships on the same itinerary.

Capacity days ballooned more than 23% with the addition of Norwegian Breakaway and Norwegian Getaway in May 2013 and January 2014. The 3.8%/3.9% net yield increase came from higher ticket and on-board and other revenue. 

Adjusted net cruise cost excluding fuel per capacity day increased 3.7% (3.4% in constant currency) mainly due to inaugural and launch-related costs for Norwegian Getaway along with incremental expenses for the planned Norwegian Spirit drydock. Fuel consumption per capacity day fell a whopping 6.8%.

Norwegian expects Q2 EPS in the range of 55 cents to 60 cents, up from 29 cents in Q2 2013, and reiterated its full-year EPS guidance of $2.20 to $2.35, in line with the consensus expectation of $2.27 and up from $1.41 in 2013.

Net yield guidance for the year was lowered to up 3% to 3.5% in both reported/constant currency, compared to the approximate 4% increase projected in February, due to Caribbean pricing pressures.

Despite the reduced yield guidance, Wells Fargo Securities predicted NCLH shares will be flattish or up Tuesday given reduced investor expectations and the company's solid Q2 forecast.

'We view NCLH's Q1 results positively given the company's high 72% exposure to the Caribbean in the quarter and persistent pricing pressures in the region,' said Wells Fargo analyst Tim Conder in a note with initial thoughts prior to the company's earnings call.

'Our young modern fleet, including our earnings-rich newbuilds, coupled with our strategy of consistent deployment, particularly our commitment to the European market, allow us to reiterate our full year adjusted EPS guidance, which translates into 60% earnings growth,' Sheehan said.

Norwegian's board approved a three-year, $500m share repurchase program that enables the company to buy back shares from time to time in the open market, in privately negotiated transactions, in accelerated repurchase programs or in structured share repurchase programs.

At Monday's closing share price of $31.67 the buyback implies, UBS Investment Research said, the repurchase of 16m shares, a 7% reduction of diluted share base. However, the brokerage would not expect Norwegian to have the liquidity to use most of the authorization until the second half of 2014.

Genting Hong Kong shareholders last week approved the company's proposal to sell, at some point, its entire remaining 27.7% stake in NCLH, and UBS analyst Robin Farley said Apollo likely is thinking about reducing its own stake in line with Genting as they have sold down together in transactions since the IPO.