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Will High Costs Mar Norwegian Cruise Line (NCLH) Q1 Earnings?

Zacks Equity Research
Updated

Norwegian Cruise Line Holdings Ltd. NCLH is slated to release first-quarter 2018 results on May 2, before the market opens.

In the fourth quarter of 2017, the company delivered a positive earnings surprise of 7.9%. Norwegian Cruise Line also surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with an average beat of approximately 5.9%.

However, things do not look rosy for the company in the soon-to-be reported quarter. High costs owing to the upsurge in fuel prices are likely to hurt results.

In fact, the stock has been grappling with high operating expenses for quite some time. This is evident from the company’s disappointing price movement in a year’s time. While the stock has shed  2.9% of its value, the Zacks Leisure and Recreation Services industry gained 0.8%.

Given this backdrop, let’s delve deeper to find out the factors likely to have a bearing on the company’s results in the quarter to be reported.

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We expect high costs to limit bottom-line growth at Norwegian Cruise Line in the first quarter of 2018. In the last reported quarter, an increase in cruise operating expenses affected the company’s earnings growth and the first quarter is unlikely to be any different. Rise in fuel costs are primarily responsible for pushing up total expenses. The company expects fuel price per metric ton, net of hedges, to be $450 for the soon-to-be-reported quarter.

Also, oil prices have been on an uptrend lately and were up approximately 8% in the January-to-March period. We note that high oil prices do not bode well for travel-focussed companies like Norwegian Cruise Line as fuel costs account for a significant chunk of their expenditures.

This apart, investments undertaken by the company to upgrade the facilities for travel are also pushing up costs, which are likely to hurt the bottom line in the first quarter. The Zacks Consensus Estimate for Net Cruise Cost per Capacity Day in the quarter is pegged at $154, above $145 unveiled by the company in the fourth quarter of 2017.

Moreover, foul weather, which was prevalent in the January-to-March period, might hurt results as well. In fact, higher marketing and promotional expenses along with increased cruise costs are likely to dent margins.

However, increased ticket revenues should boost Norwegian Cruise Line’s top line in the soon-to-be reported quarter. The Zacks Consensus Estimate for passenger ticket revenues in the first quarter of 2018 stands at $875 million, above $787 million unveiled by the company a year ago.  Additionally, Capacity Days are projected to increase approximately 11% year over year.

Norwegian Cruise Line Holdings Ltd. Price and EPS Surprise

 

Norwegian Cruise Line Holdings Ltd. Price and EPS Surprise | Norwegian Cruise Line Holdings Ltd. Quote

What Does Our Model Indicate?

Our proven model shows that Norwegian Cruise Line is unlikely to beat on earnings in the to-be-reported quarter. This is because the stock does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase its odds of an earnings surprise.

Zacks ESP: Norwegian Cruise Line has an Earnings ESP of +0.47%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company’s Zacks Rank #4 (Sell), acts as a spoiler. The unfavorable Zacks Rank combined with a positive Earnings ESP leaves the surprise prediction inconclusive.

As it is, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the broader Zacks Consumer Discretionary space, which according to our model have the right combination of elements to post an earnings beat:

Carnival Corporation CCL has an Earnings ESP of +2.31% and a Zacks Rank #3. The company is expected to report second-quarter fiscal 2018 results on Jun 28. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

Discovery Communications DISCA has an Earnings ESP of +0.39% and a Zacks Rank #2 (Buy). The company will report first-quarter 2018 results on May 8.

Marriot International MAR has an Earnings ESP of +0.40%. The Zacks #3 Ranked company is scheduled to report first-quarter 2018 results on May 8.

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Marriott International (MAR) : Free Stock Analysis Report
 
Carnival Corporation (CCL) : Free Stock Analysis Report
 
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Discovery Communications, Inc. (DISCA) : Free Stock Analysis Report
 
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