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Why Is Norwegian Cruise Line (NCLH) Up 4.8% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Norwegian Cruise Line (NCLH). Shares have added about 4.8% 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 catalysts.

Norwegian Cruise Q3 Earnings & Revenues Beat Estimates

Norwegian Cruise has reported better-than-expected results in the third quarter of 2019. The company’s earnings and revenues surpassed the Zacks Consensus Estimate for the third straight quarter. The quarterly results were aided by strong demand and a record booking trend.

Earnings & Revenue Discussion

Adjusted earnings of $2.23 per share surpassed the Zacks Consensus Estimate of $2.15. However, the bottom line declined 1.8% from the year-ago quarter’s reported figure.

Revenues amounted to $1,913.9 million in the third quarter, surpassing the consensus mark of $1,902 million and increasing 3% year over year. Revenues were driven by an increase of 2.9% in passenger ticket revenues as well as 3.1% rise in onboard and other revenues.

Strong onboard spending had a positive impact on the quarter’s revenues as well. Moreover, an increase in net yield, driven by the repositioning of Norwegian Joy to North America, boosted revenues.

Gross yield (total revenues per Capacity Day) rose 4.8% in the quarter on a year-over-year basis. On a constant-currency (cc) basis, net yield rose 3.9% in the third quarter of 2019.

Expenses & Operating Results

Total cruise operating expenses rose 6.7% in the quarter under review from the year-ago quarter’s level. The increase can be attributed to redeployment of Norwegian Joy as well as rise direct costs owing to air promotions.

Gross cruise costs per capacity day rose 8.9%. Adjusted Net cruise costs (excluding fuel) per Capacity Day grew 11% at cc and 10.2% on a reported basis. Fuel price per metric ton (net of hedges) was down 1.2% to $504 in the quarter under review.

Net interest expenses were $60.2 million in the third quarter, down from $69.5 million in the year-ago quarter.

Balance Sheet

Cash and cash equivalents as of Sep 30, 2019, were $407.3 million, up from $163.9 million as of Dec 31, 2018. Long-term debt at the end of the third quarter totaled $5.7 billion, lower than $5.8 billion at the end of 2018.

Q4 Guidance

For the fourth quarter of 2019, Norwegian Cruise expects adjusted earnings to be approximately 69 cents.

Net yield is expected to be flat at cc. The company expects net cruise costs (excluding Fuel per Capacity Day) to be roughly 2.25% at cc.

2019 Outlook

For 2019, Norwegian Cruise expects adjusted earnings per share of approximately $5.05 compared with previous guidance of $5.00-$5.10. The Zacks Consensus Estimate for 2019 earnings is at $5.04.

Net yield is expected to be 3% compared with Norwegian Cruise’s prior guidance of 2.6%.  Meanwhile adjusted net cruise costs are anticipated to be nearly 5.75% at cc, higher than previous expectation of 4.5%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -9.45% due to these changes.

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VGM Scores

At this time, Norwegian Cruise Line has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 this revision indicates a downward shift. It's no surprise Norwegian Cruise Line has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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