Norwegian Cruise Line Holdings (NYSE:NCLH) investors had a pretty good day yesterday. After the cruise operator reported its financial results for Q2 2020, shares surged to close the day nearly 4% higher. But today Norwegian stock is giving back all of those gains and returning to a price actually lower than what it was worth before earnings.
As I explained in the commentary on yesterday's earnings report, investors aren't really interested in reading about Norwegian Cruise Line's earnings these days -- because they know there aren't any and there won't be any until the Centers for Disease Control and Prevention (CDC) lifts its no-sail order banning cruise ships from sailing out of U.S. ports.
Instead, what investors want to know is simply this: Does Norwegian Cruise Line Holdings have the cash it needs to survive until cruising can resume?
In that regard, Norwegian's report yesterday was somewhat reassuring, but also somewhat disconcerting.
On the one hand, the cruise line confirmed that as of the end of June, it had $2.3 billion in cash on hand. Add to that the further $1.5 billion in debt it raised in July, and subtract $0.2 billion or so for accumulated cash burn, and Norwegian may have as much as $3.6 billion in cash available to it currently, to fund it through the end of the current recession in cruise stocks.
Problem is, Norwegian also noted that it is continuing to burn cash at the rate of $160 million a month while its ships are confined to port. That's significant because, only a few months ago, Norwegian said it was burning cash at the rate of $110 million to $150 million a month. The company explained that its "new monthly cash burn estimate is at the high end of the previously disclosed range due to additional interest expense related to the July capital raise, maintaining more ships in warm layup due to various port requirements and weather restrictions, increased costs associated with fluctuating travel restrictions for crew and additional marketing investments." But whatever the reasons, the fact remains: Norwegian is burning cash faster than planned.
That's not good news for investors, and I suspect it's why they're selling the stock today.