A month has gone by since the last earnings report for Norwegian Cruise Line (NCLH). Shares have added about 16.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Norwegian Cruise Line due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Norwegian Cruise’s Q3 Earnings Top Estimates, Rise Y/Y
Norwegian Cruise reported mixed third-quarter 2023 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The top and the bottom line increased on a year-over-year basis. The upside was primarily driven by strong demand from target upmarket consumers and ongoing margin enhancement initiatives.
The company cautiously monitors short-term expectations amidst global economic and geopolitical shifts. Despite this, NCLH remains optimistic due to its strong forward bookings and robust pricing to sustain this positive momentum through the end of 2023.
Earnings & Revenue Discussion
Norwegian Cruise reported adjusted earnings per share of 76 cents, beating the Zacks Consensus Estimate of adjusted earnings of 69 cents per share by 10.1%. In the prior-year quarter, the company reported an adjusted loss per share of 64 cents. The upside was backed by solid revenue performance and continued focus on cost reduction.
Quarterly revenues of $2,536 million missed the consensus mark of $2,543 million. In the prior-year quarter, the company reported revenues of $1,615.5 million. The upside can be attributed to solid occupancy and pricing growth.
In the quarter under review, passenger ticket revenues were $1,733.6 million compared with $1,105.9 million reported in the prior-year quarter. Our model suggested passenger ticket revenues to be $1,767.3 million. Onboard and other revenues increased to $802.4 million from $509.6 million reported in the prior-year quarter. We expected onboard and other revenues to be $756.4 million.
Expenses & Operating Results
Total cruise operating expenses increased 19.7% in the quarter under review from the year-ago quarter’s levels. The company’s expenses in the quarter primarily stemmed from the resumption of cruise voyages and inflationary pressures. The company reported a rise in payroll, fuel and direct variable costs of fully-operating ships.
During the third quarter, gross cruise costs dropped 0.3% (from 2019 levels) to $1,808.1 million. Adjusted net cruise costs (excluding fuel) amounted to $878.4 million compared with $882.2 million in the third quarter of 2019. Fuel price per metric ton (net of hedges) fell to $727 from $830 in 2022.
Net interest expenses in the quarter were $181.2 million compared with $152.3 million reported in the year-ago quarter.
Balance Sheet
Cash and cash equivalents as of Sep 30, 2023, were $681.6 million compared with $947 million at the end of Dec 31, 2022. Long-term debt came in at $12.6 billion, in line with 2022-end.
Booking Update
During the third quarter, the company faced operational challenges due to global events like the Maui wildfires and the Israel conflict. However, demand has improved in recent weeks and is now approaching normalized levels.
Also, it reported strength in advance ticket sales. As of Sep 30, 2023, the company’s advance ticket sales balance, including the long-term portion, came in at $2.97 billion, up 59% from 2019 levels. The company stated pricing levels to be elevated.
2023 Guidance
For the fourth quarter of 2023, the company anticipates occupancy to be approximately 98% and Capacity Days to be about 5.9 million. During the quarter, adjusted interest expense is expected at approximately $200 million, while depreciation and amortization are anticipated at approximately $215 million. Adjusted EBITDA is expected at nearly $360 million. For the fourth quarter, adjusted loss per share is projected to be nearly 15 cents.
For 2023, the company now anticipates occupancy to be approximately 102.6% compared with the prior projection of 103.5% and Capacity Days to be about 22.7 million. During the year, adjusted interest expenses are expected at approximately $730 million compared with the prior projection of $720 million. Depreciation and amortization are anticipated at nearly $810 million compared with the prior projection of $815 million. Adjusted EBITDA during the year is expected at nearly $1.86 billion. For 2023, adjusted EPS is projected to be nearly 73 cents compared with the prior projection of 80 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -700% due to these changes.
VGM Scores
Currently, Norwegian Cruise Line has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Norwegian Cruise Line has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Norwegian Cruise Line is part of the Zacks Leisure and Recreation Services industry. Over the past month, Caesars Entertainment (CZR), a stock from the same industry, has gained 10.1%. The company reported its results for the quarter ended September 2023 more than a month ago.
Caesars Entertainment reported revenues of $2.99 billion in the last reported quarter, representing a year-over-year change of +3.7%. EPS of $0.34 for the same period compares with $0.24 a year ago.
For the current quarter, Caesars Entertainment is expected to post earnings of $0.22 per share, indicating a change of +300% from the year-ago quarter. The Zacks Consensus Estimate has changed -33.9% over the last 30 days.
Caesars Entertainment has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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