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Prestige yields lift NCLH Q1, company raises low end of 2015 guidance

NCLH expects better than previously projected integration synergies of $75m in 2015, with $20m to be reinvested
Stronger than expected yields from the Prestige Cruises brands pushed Norwegian Cruise Line Holdings' first quarter profit up more than 17%, to 27 cents per share, and the company raised the lower range of its full-year guidance by a nickel per share and outlined heftier integration synergies.

Analysts had expected a profit of 23 cents per share, equal to the year-ago first quarter.

The $62.6m profit was driven by an adjusted net yield increase of 18.9%, or 19.9% in constant currency, due to the addition of upper premium Oceania Cruises and luxury Regent Seven Seas Cruises brands. Also, interest expense was lower than projected.

'I am pleased to report strong earnings out of the gate for our first full quarter of operations following the combination of Norwegian and Prestige late last year,' NCLH president and ceo Frank Del Rio said. 'These results are even more impressive as they come against strong comparables in the prior year, particularly for the Norwegian brand, and headwinds from foreign currency exchange rates.'

On a GAAP basis, diluted loss per share and net loss were 10 cents and $21.5m, respectively, primarily due to transaction and integration-related costs.

NCLH now expects Q2 profit in a range of 70 cents to 75 cents per share, up from 58 cents a year ago and in line with the consensus expectation of 72 cents.

Full-year 2015 guidance goes to a range of $2.75 to $2.90, up from $2.70 to $2.90 previously. The consensus expectation is $2.83.

Guidance includes the impacts of expected continued fluctuations in foreign exchange rates and an unscheduled Q2 drydock for Norwegian Star for warranty-related repairs on its propeller system which malfunctioned after the ship's scheduled Q1 drydock.

'We are raising the midpoint of our guidance to take into account the better than anticipated interest expense and net yield performance in the first quarter,' evp and cfo Wendy Beck said.

She added NCLH is maintaining its net yield and net cruise cost guidance for the year 'as benefits from our incremental revenue synergies offset the anticipated foreign currency headwinds and the revenue impact from the unscheduled drydock of Norwegian Star. Further, the reinvestment of $20m into demand-driving initiatives is offset by incremental cost synergies identified in the quarter.'

For Q1, on a combined company basis, which compares current results against the combined results of Norwegian and Prestige in the prior year, adjusted net yield was down 0.7% and essentially flat on a constant currency basis against a strong Q1 2014 that included the benefit of a one month charter of Norwegian Jade for the 2014 Winter Olympics.

Adjusted net revenue for the period increased 46% to $728.9m as a result of the acquisition of the Oceania Cruises and Regent brands as well as approximately one month of incremental sailings from Norwegian Getaway which debuted in early 2014. Revenue increased to $938.2m from $664m in 2014.

The incremental debt from the acquisition drove increased interest expense, net to $51m from $31.2m. However, lower than anticipated interest rates resulted in expense that was lower than the company's guidance. Other expense of $30.1m was primarily attributable to a fair value adjustment on a foreign exchange collar for one of the company's newbuilds.

NCLH has now identified $75m in integration synergies for 2015, consisting of $30m in revenue and $45m in cost savings. The company had previously expected $15m in revenue and $25m in cost synergies for a total of $40m this year. Of the incremental synergies, NCLH is earmarking $20m for reinvestment directed to business initiatives to further drive demand to its three brands, resulting in net synergies of $55m for 2015.    

'Tasked with a mandate that synergies have a neutral or positive impact on the guest experience, the organization has come together to identify meaningful incremental synergies,' Del Rio said. 'The net synergies will have an immediate impact on the bottom line in 2015, while amounts reinvested in our business initiatives will benefit our strategies for earnings growth in 2016 and beyond.'

For the full year 2016, the company has identified synergies of $115m, including the annualization of initiatives introduced in 2015 coupled with new initiatives. Of these, NCLH plans to reinvest $40m, resulting in net synergies for the year of $75m.

(See related story for reporting on the Q1 earnings call.)