Profits Down, Cruise Ship Occupancy Up: NCL's Q1 Earnings Report

April 29, 2010
Earnings Reports

(3:10 p.m. EDT) -- Just a few months from the launch of Norwegian Epic, the splashiest new-ship debut of 2010, Norwegian Cruise Line has issued an earnings report for Q1 2010. The bottom line? Currency fluctuations, fuel costs and interest payments chomped into profits, but despite suffering a net loss for the quarter, NCL enjoyed record occupancy levels -- and cruise fares in 2010 are expected to exceed the bottom-basement fares of last year.

NCL Background

Unlike Carnival Corp. (Carnival, Princess, Costa, etc.) and Royal Caribbean Cruises Ltd. (Royal Caribbean, Celebrity, Azamara Club Cruises, etc.), NCL is not a publicly traded company in the U.S. It's half owned by Apollo Management LP, a private equity firm, and half owned by Genting Hong Kong, which is publicly traded on the Hong Kong stock exchange. Genting's portfolio includes land-based resorts, cruise ships, casinos and entertainment venues. While NCL is not a publicly traded company, conditions in the company's bond offering state that it does have to file a public earnings report -- but the line did not have a traditional earnings call, where analysts have a forum to ask executives for some color on the company's financials. Both Royal Caribbean and Carnival have such calls.

Do the Math

NCL reported a net loss for the quarter of $16.1 million on revenue of $416.5 million compared to net income of $5.2 million on revenue of $424.5 million in 2009. So why the drop in profits?

In a statement, the line cited currency fluctuations between the dollar and euro, and a rise in interest expenses as major reasons for the loss. The net loss in the first quarter of 2010 included a foreign currency translation loss of $0.3 million while net income in 2009 included a foreign currency translation gain of $15.4 million.

Interest expense, net of capitalized interest, increased to $35.8 million in the quarter compared to $25.4 million in 2009 due to higher average interest rates in the period. The company's long-term debt is $2.47 billion.

Fuel costs, which have been creeping upward over the past year, also cut into the bottom line. Average fuel cost per metric ton for the period climbed to $488 in 2010 from $298 in 2009, and the company spent over $47 million on fuel costs in Q1 2010 compared to $32.5 million in Q1 2009.

NCL also noted that the decline in revenue resulted from the departure of Norwegian Majesty, which sailed its final cruise for the line at the end of October 2009. Majesty was sold to Louis Cruise Lines, where it now sails as Louis Majesty.

Despite the loss and the decline, the line experienced a 5.7 percent increase in net yield (net revenue per capacity day) over first quarter 2009. The company said the increase in net yield was a result of both improved passenger ticket pricing as well as improved net onboard revenue. Occupancy percentage for the period increased to 107.9 percent, an all-time high according to NCL, compared to 106.9 percent in the prior year. One hundred percent occupancy is reached when all cabins are filled at double occupancy. The post-100 points are earned when third and fourth berths (pull-down beds, sleeper sofas) are accounted for.

Deals or No Deals?

In line with what Carnival Corp. and Royal Caribbean Cruises Ltd. have already reported about their own brands, NCL's 2010 pricing for the remainder of the year is expected to surpass 2009 levels. As we reported previously, NCL (as well as Carnival) actually alerted consumers of its April price hike.

NCL noted that the largest improvements are coming from itineraries for premium destinations, such as Alaska and Europe. The booking window continues to expand over prior year levels and is among the highest in years.

Future Tense

The year 2010 may be a litmus test for NCL because the line's profitability will depend somewhat on the success of Norwegian Epic, the bold (and expensive) new cruise ship due out in summer 2010.

In Case You Missed It

Norwegian Epic will serve as the host venue for the 34th annual Macy's 4th of July Fireworks. During the spectacular event to commemorate the 234th birthday of the United States of America, the 153,000-ton, 4,200-passenger ship will also be the setting for a one-hour live national broadcast on NBC.

NCL also recently announced that it is investing over $20 million to improve its private island, Great Stirrup Cay.

--by Dan Askin, Associate Editor