Last quarter, Norwegian Cruise Line Holdings (NYSE:NCLH) overcame a mix of internal and external headwinds to piece together a fairly strong earnings report, and in the third quarter of 2019, the narrative remained quite similar, although adverse earnings impacts were confined to external factors in the last three months. Below, as we sail through the details of the last three months, note that all comparative numbers are presented against those of the prior-year quarter.

A bird's-eye view of the numbers

Metric Q3 2019 Q3 2018 Change 
Revenue $1.91 billion $1.86 billion 2.7%
Net income $450.6 million $470.4 million (4.2%)
Diluted earnings per share $2.09 $2.11 (0.90%)

Data source: Norwegian Cruise Line Holdings.

Highlights from the quarter

  • Norwegian's net yield (i.e., net revenue divided by total available passenger cruise days) improved by 3.3%, or 3.9% on a constant-currency basis. 
  • Management attributed net yield growth to the repositioning of the Norwegian Joy from Asia to the West Coast of North America, as well as higher onboard spending on vessels and firm organic pricing power across all of the cruise line's core markets. 
  • The redeployment of the Norwegian Joy and incremental costs related to air promotions were primary factors cited by management for a 6.7% increase in cruise operating expense. Gross cruise costs per capacity day increased by nearly 9%. 
  • Net of hedges, fuel price per metric ton decreased to $504 against $510 in the comparable quarter.
  • The company generated adjusted earnings per share (EPS) of $2.23, versus $2.27 in Q3 2018. The current-quarter EPS includes a $0.06 impact from "voyage cancellations, itinerary modifications and relief efforts related to Hurricane Dorian."
  • Full-year 2020 bookings are pacing ahead of 2019 levels in both occupancy and pricing.
  • Norwegian repurchased $150 million of its common stock during the quarter, and has repurchased a total of $350 million worth of its own shares in the first three quarters of 2019.
  • The company announced that it has eliminated single-use plastic bottles on its ships, becoming the first major cruise line to do so. The initiative is expected to reduce single-use plastic usage by over 6 million bottles annually.
  • After quarter end, on October 30, the company took delivery of what management terms its most innovative ship, the Norwegian Encore. The Encore is the last ship in Norwegian's most successful ship class, the Breakaway Plus Class.
Close-up of a cruise ship captain at the controls of a modern vessel.

Image source: Getty Images.

Management's comments on the quarter

In the cruise provider's earnings press release, CEO Frank Del Rio discussed the quarter's results, along with two drivers of next year's robust bookings: the Norwegian Encore and the spa and wellness-themed Seven Seas Splendor, which is set to launch on its inaugural voyage next year. 

The underlying fundamentals of our business remain as strong as ever, allowing us to post another solid quarter of financial results despite the impacts from Hurricane Dorian. The top line exceeded expectations and we recorded the highest quarterly revenue in our history. We are on track to deliver yet another record-breaking year in 2019, and the positive momentum for our global brands is carrying over into 2020, as demand, occupancy and pricing continue to outpace 2019 record levels, buoyed by the addition of Norwegian Encore and Seven Seas Splendor.

Looking ahead

Cruising into the last quarter of the year, Norwegian expects fourth-quarter net yield to decline by 1%, which translates to a flat performance in constant currency. The company is targeting $0.69 in adjusted EPS.

For full-year 2019, the organization increased its net yield outlook, from the 2.1% annual growth outlined last quarter to 2.4%. The projection for net yield expansion in constant currency terms has increased from 2.6% to 3%.

Norwegian tightened its adjusted 2019 EPS estimate from a previous range of $5.00-$5.10 to a target of $5.05. Management relayed that if it weren't for the Hurricane Dorian impact, guidance would have shifted to the top end of the prior range.

Despite a buoyant outlook, shares of the consumer discretionary investment reacted rather modestly to Thursday's earnings report. In late morning trade, the NCLH symbol was down roughly 1% against its prior close.

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