Picking up largely where it left off last quarter, Norwegian Cruise Line Holdings (NASDAQ:NCLH) posted impressive metrics in its first-quarter 2019 earnings report released on Thursday. The cruise specialist capitalized on new capacity in its fleet, while enjoying solid bookings and higher onboard spending courtesy of a moderately expanding global economy. Below, let's walk through headline numbers and salient details from the quarter, and also examine management's outlook going forward.
Note that all comparative numbers in the discussion that follows are presented against the prior-year quarter.
Norwegian Cruise Line: The raw numbers
|Metric||Q1 2019||Q1 2018||Growth (YOY)|
|Revenue||$1.40 billion||$1.29 billion||8.5%|
|Net income||$118.2 million||$103.2 million||14.5%|
|Diluted earnings per share||$0.54||$0.45||20%|
What happened this quarter?
- First-quarter revenue benefited from record bookings and a successful wave season (i.e. the months of January, February, and March, the busiest booking period for cruise lines during the year). The company reported strong organic pricing expansion across all markets during the quarter.
- The top line also was boosted by the addition of the Norwegian Bliss to the ship's fleet in April 2018, as well as higher onboard spending.
- Net yields, that is, net revenue divided by total available passenger cruise days, rose 4.1%, ahead of management's projection of a 2% increase.
- Operating margin slipped by 160 basis points to 11.3%. An increase in capacity days (in other words, higher capacity utilization) pushed cruise operating expenses up 7.6%, while marketing, general, and administrative expenses also increased during the last three months. New cruise ships in service pushed depreciation expense higher as well.
- While operating income declined against the prior year, and interest expense rose due to increased debt levels, Norwegian still managed to improve net income. This was due to a $35.7 million one-time income tax benefit related to the valuation of net loss carryforwards.
- Norwegian repurchased $200 million of its own common stock during the quarter.
- The company announced in March that it plans to build a 200,000 square-foot, state-of-the-art training facility near Manila in the Philippines. The center will service approximately 8,000 shipboard crew members each year, and will help to reduce onboard training time.
- Norwegian also extended its "Cruise Norwegian" app across its entire 16-ship fleet during the quarter. The app functions as both a pre-cruise planner and an onboard cruise management platform.
What management had to say
Following the first quarter's vigorous results, Norwegian Cruise Line Holdings raised its full-year guidance. In the company's earnings press release, CEO Frank Del Rio outlined the factors that have pushed management's expectations higher:
We were pleased to enter the year in a record booked position, which when combined with a solid WAVE season and record results for the first quarter, paved the way for an increase to our full year Adjusted EPS [earnings per share] outlook that now exceeds the high-end of our previous guidance range, and would result in yet another year of double-digit Adjusted EPS growth. Our modest in-year capacity growth of less than 3%, coupled with continued robust global demand for our portfolio of brands allowed us to focus on driving pricing as evidenced by our first quarter topline beat, our record wave season pricing and higher net yield growth expectations for the remainder of the year.
In its earnings report, Norwegian adjusted anticipated full-year 2019 net yields growth from a range of 2.5% to 3.5% to a new band of 3% to 4%. In addition, the cruise line tweaked its adjusted EPS target to $5.40-$5.50, against a previous expectation of $5.20 to $5.30.
Norwegian also released second-quarter guidance that projects net yields growth of 5% and adjusted EPS of $1.33. The aggressive net yields target is an indication of both management's confidence and the benign operating environment that Norwegian is currently sailing in. As the company meets robust passenger demand in the coming quarters, it's entirely possible that shareholders will see at least one more positive revision to full-year earnings.