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Norwegian Cruise Lines Exceeds 2015 Guidance; Expects Solid 2016

Tuesday, February 23, 2016
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MIAMI--This morning NCLH reported 4Q15 adjusted EPS of $0.51, beating our $0.50 estimate, and exceeding the top end of its $0.45 to $0.50 guidance. The variance to our estimate was largely driven by lower than expected net cruise costs (a combination of payroll and related and fuel costs), which offset the slight net revenue miss. All in all, it was a nice Q for NCLH. Current $ adjusted net yields came in at 15.2% (versus 13.75% guidance) or 16.9% (versus 14.75% guidance) on a constant currency basis. Importantly, the company remains on track for its 2017 EPS goal, and now looks to “exceed” $5.00/EPS in that period (versus its prior view of $5.00). Broadly speaking, we think today’s results were solid and are enough to begin to shake the more cautious stance that many investors have had year-to-date surrounding cruise fundamentals. We will have more following the call.

• 2016 Outlook. NCLH reiterated its strong booked position continuing into the wave season, noting encouraging early trends for 2017 as well. Geographically, strength in the Caribbean, Alaska and Bermuda continued, offsetting weakness in the Mediterranean itineraries. ROIC is expected to reach double digits in 2016, and remains on track to reach 14% ROIC by 2018.

• 2016 Guidance. NCLH is looking for EPS of $3.65-$3.85 (versus JPM $3.88). The underlying drivers are 1) net yield growth of 3.5%, 2) NCC, excl. fuel of 2.25%, and fuel expense of $340.8m, on fuel consumption 725k mt and fuel price per metric ton guidance of $470/mt. NCLH’s 1Q16 adjusted EPS estimate is $0.34-$0.39, driven by net yield increases of 1.75%, NCC ex fuel of approx. 1.75%, and fuel expense of $83.3m ($450/mt on consumption of 185k mt).

• 4Q15 cost recap. Adj. NCC per CD excluding fuel increased 16.6%, versus our estimate of 15.0%. Fuel expense came in at $90.9m versus our $99.0m, as pricing came in at $509/mt, versus our $535/mt estimate and consumption was lower at 178.5k mt versus our estimate of 185k mt.

• Buybacks. The company repurchased 1.7m shares at an average price of $58.82 in the Q (~$100m), as NCLH continued buyback activity for the second Q in a row time since its Prestige acquisition. The $500m repurchase program was authorized in April 2014 and as of 4Q15 had a ~$300m remaining balance available for purchase.

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