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Why Norwegian Cruise Line Holdings Stock Rose 5% After Earnings

By Rich Smith – Aug 6, 2020 at 2:46PM

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The cruise company's results were bad, but that's what investors expected.

What happened

Cruise line operator Norwegian Cruise Line Holdings (NCLH -3.16%) reported its Q2 2020 financial results this morning. The news was not good, but the stock jumped 5% out of the gate, and remained up a solid 3.4% at 1:10 p.m. EDT on Thursday.

Cruise ship at sea

Image source: Getty Images.

So what

Confined to port by order of the Centers for Disease Control and Prevention (CDC), Norwegian says it probably won't be sailing anywhere before Oct. 31. So analysts weren't expecting the company to report a whole lot of revenue today, or even any profits.  

Estimates called for revenue to be a bare $25.5 million, down from $1.7 billion a year ago -- a 98% decline. In fact, revenue came in even lower than that: $16.9 million, for a decline of 99%.  

It was a similar story with profits. Wall Street predicted a $2.26 loss per share, but Norwegian reported a loss of $2.78.

Now what

It's common knowledge by now that Norwegian (and the other cruise line stocks) aren't generating any revenue or earning any profits. These expectations have been set, and aside from some rounding errors, they were pretty much met this morning. Instead of looking for earnings, therefore, investors in Norwegian Cruise stock today are simply searching for evidence that the company can survive, and that it won't run out of cash before the CDC's no-sail order runs out.

Norwegian's update today confirmed that it has raised another $1.5 billion in cash from debt offerings, and that it has $10.3 billion in debt but also $2.3 billion in cash and equivalents. And at a recent cash burn rate of $160 million per month, it says it has enough money "to withstand a scenario of prolonged voyage suspensions" even if the recession continues well into 2021. And that seems to be all investors needed to hear.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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