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Norwegian Cruise Line (NCLH) Down 2.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Norwegian Cruise Line (NCLH). Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Norwegian Cruise Line due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Norwegian Cruise Q3 Earnings & Revenues Beat Estimates

Norwegian Cruise reported third-quarter 2022 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Moreover, both metrics improved year over year.

The company is benefiting from improving occupancy. In the third quarter of 2022, occupancy improved 17 basis points to nearly 82%. The company anticipates occupancy levels to improve and reach historical levels for the second quarter of 2023. In fourth-quarter 2022, the company expects occupancy to be in the mid-to-high 80 percent range.

Earnings & Revenue Discussion

Norwegian Cruise reported an adjusted loss per share of 64 cents, narrower than the Zacks Consensus Estimate of a loss of 71 cents. In the prior-year quarter, the company reported a loss per share of $2.17.

Quarterly revenues of $1,615.5 million beat the consensus mark of $1,576 million. In the prior-year quarter, the company had reported revenues of $153.1 million. The upside can primarily be attributed to the resumption of cruise operations.

In the quarter under review, passenger ticket revenues were $1,105.9 million compared with $86.1 million reported in the prior-year quarter. Onboard and other revenues increased to $509.6 million from $67 million reported in the prior-year quarter.

Expenses & Operating Results

Total cruise operating expenses increased 181.7% 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. The company noted that the increase in 2022 reflects an improvement in payroll, fuel and direct variable costs of fully operating ships.

Gross cruise costs in the third quarter increased 141.3% year over year to $1,614.2 million. Adjusted net cruise costs (excluding fuel) amounted to $947.7 million compared with $538 million in the prior-year quarter. Fuel price per metric ton (net of hedges) increased to $830 from $693 in 2021.

Net interest expenses in the quarter were $152.3 million, up from $161.2 million in the year-ago quarter.

Balance Sheet

Cash and cash equivalents as of Sep 30, 2022, were $1.2 billion compared with $1.5 billion at the end of Dec 31, 2021. Long-term debt as of Sep 30, 2022, came in at $12.9 billion compared with $11.6 billion as of Dec 31, 2021.

Guidance & Booking Updates

The company said that booked position for fourth-quarter 2022 is below the comparable 2019 level. However, booking trends for 2023 remain in line with that of 2019. Pricing is meaningfully higher than that of 2019 at the same point in time for the full year 2023.

Due to the coronavirus outbreak and the Russia-Ukraine conflict, the company is unable to estimate the impact on its business. The company expects to report a net loss for the fourth quarter of 2022. In fourth-quarter 2022, it anticipates net interest expenses to be nearly $170 million. For the full year, it expects the same to be $610 million, excluding losses on extinguishment of debt. Depreciation and amortization are forecast to be roughly $195 million for the fourth quarter of 2022 and $740 million for the full year of 2022.

The company expects occupancy to be in the mid-to-high 80% range in the fourth quarter of 2022. Capacity days are anticipated to be 5.1 million in the fourth quarter. In the fourth quarter, the company expects revenues to be in the range of $1.4-$1.5 billion. Adjusted net cruise cost (excluding fuel per capacity day) is likely to decline nearly 10% in the second half of 2022 compared to the first half of 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -23.59% due to these changes.

VGM Scores

At this time, Norwegian Cruise Line has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 belongs to the Zacks Leisure and Recreation Services industry. Another stock from the same industry, Royal Caribbean (RCL), has gained 7.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Royal Caribbean reported revenues of $2.99 billion in the last reported quarter, representing a year-over-year change of +555%. EPS of $0.26 for the same period compares with -$4.91 a year ago.

Royal Caribbean is expected to post a loss of $1.30 per share for the current quarter, representing a year-over-year change of +72.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.1%.

Royal Caribbean 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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