Norwegian Cruise Line (NCLH) Up 7.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Norwegian Cruise Line (NCLH). Shares have added about 7.2% 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 Q2 Earnings & Revenues Beat Estimates

Norwegian Cruise has reported better-than-expected results for the second quarter of 2019. With this, the company’s earnings surpassed the Zacks Consensus Estimate for 10 consecutive quarters. Its revenues also exceeded the consensus mark in four of the trailing five quarters.

The company’s quarterly results were aided by strong demand and a record booking trend. However, it lowered the guidance for 2019, which may have not gone down well with investors.

Earnings & Revenue Discussion

Adjusted earnings of $1.30 per share surpassed the Zacks Consensus Estimate of $1.26 by 3.2%. The bottom line also grew 7.4% from the year-ago quarter.

Revenues were $1,664.3 million in the second quarter, slightly surpassing the consensus mark of $1,624 million, and grew 9.3% year over year. Revenues were driven by an improvement of 9.5% in passenger ticket revenues, and 8.9% increase in onboard and other revenues.

Total revenues were also favored by the addition of Norwegian Bliss along with robust growth in organic pricing across all core markets. Strong onboard spending had positive bearings 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 revenue per Capacity Day) grew 7.5% in the quarter on a year-over-year basis. On a constant-currency basis, net yield rose 5.8% in the second quarter of 2019. The measure was up 5% on a reported basis.

Expenses & Operating Results

Total cruise operating expenses rose 11.1% in the quarter under review from the year-ago quarter. This increase can be attributable to growth Capacity Days.

Gross cruise costs per capacity day rose 8.3%. Adjusted Net cruise costs (excluding fuel) per Capacity Day grew 6.1% on a constant-currency basis and 5.1% on a reported basis. Fuel price per metric ton (net of hedges) was up 2.5% to $493 in the quarter under review.

Net interest expenses were $66 million in the second quarter of 2019, down from $73 million in the second quarter of 2018.

Balance Sheet

Cash and cash equivalents as of Jun 30, 2019, were $419.9 million, up from $163.9 million as of Dec 31, 2018. Long-term debt at the end of the second quarter totaled $5.7 billion, slightly lower than $5.8 billion at the end of 2018.

Third-Quarter 2019 Guidance

For the third quarter of 2019, Norwegian Cruise expects adjusted earnings to be $2.15 per share, below the consensus estimate of $2.26.

Net yield is expected to be 1.75% at constant currency. The company expects net cruise costs (excluding Fuel per Capacity Day) to be roughly 8.3% in constant currency.

2019 Outlook

For 2019, Norwegian Cruise expects adjusted earnings per share of $5.00-$5.10, down from the earlier $5.40-$5.50. The Zacks Consensus Estimate for its earnings in 2019 stands at $5.14, above the company’s guided range.

Net yield is expected to be 2.6%, lower than Norwegian Cruise’s prior guidance of 4.5%.  Meanwhile adjusted net cruise costs are anticipated to be roughly 4.5% in constant currency, higher than previously mentioned 3.5%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Norwegian Cruise Line has a nice Growth Score of B, 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 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. Notably, Norwegian Cruise Line has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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