On a day when Russia invades Ukraine, it pretty much doesn't matter what earnings a company reports; its stock is going to take a hit. But if those financials are disappointing, as were Norwegian Cruise Line Holdings' (NCLH -0.77%), then it's going to have an even more powerful impact on its shares.
The cruise ship operator's stock tumbled 8% at the open on Feb. 24 after the results missed analyst expectations for the fourth quarter. While revenue was substantially higher than a year ago as its 28-ship fleet was back at 70% strength, it reported a much wider-than-anticipated loss as disruptions caused by the rogue waves of the delta and omicron variants of COVID-19 swept over Norwegian.
Where analysts expected a loss of $1.69 per share, the cruise line recorded one of $1.95 per share. Even so, the outlook for the future is still hopeful, though with world events being what they are, don't expect much out of Norwegian Cruise Lines for the immediate future.
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Encountering rough seas still
It wasn't hard for the cruise operator to do better than last year, when ships weren't allowed in the water. Where it reported $9.6 million in revenue then, Norwegian saw revenue surge to over $487 million this time around as bookings for cruises in the period and for the coming quarters were fairly robust.
The COVID-19 variant outbreaks disrupted what looked to be a strong comeback for travel and tourism stocks. Norwegian expected to hit 75% of operating capacity by the end of last year with a "critical inflection point in the first quarter [of] 2022 with operating cash flow turning positive." It also anticipated being profitable come the second half of the year.
As noted, though, the surges had Norwegian come up just short on operating capacity and the inflection point is now not expected to be achieved until the second quarter. Profitability is also going to be delayed, though the company said net income should be positive on an adjusted basis.
Still, bookings are doing comparatively well. Although it rode the variant surges like a ship riding waves in a storm, Norwegian said net bookings materially improved over the last six weeks, especially for cruises in the back end of 2022 and early 2023.
Moreover, in the second half of 2022 when the cruise operator expects to have its fleet fully restored, it says bookings are comparable to what they were before the pandemic, yet they're at higher pricing levels.
Better positioned financially
Cruise line stocks were arguably the worst hit by the pandemic. After other businesses were allowed to reopen and resume operations, the Centers for Disease Control and Prevention regulations kept cruise ships from sailing. Only threats of lawsuits seemed to finally cause the health agency to relent.
As ships began moving back into rotation, the pent-up demand for cruises seemed to be bringing back recovery faster than anticipated, only to have the variants cause it to stall. The industry looks to be on course now for a rebound.
Norwegian Cruise Line has improved its financial position even though it has taken on more than $12 billion worth of debt to survive, including an additional $2.1 billion in debt transactions conducted just this month. It used the financing to retire early maturing debt and lower its interest payments to save $75 million annually.
Although it fully expects to report losses until it's 100% operational, meaning the hoped-for recovery has been somewhat delayed, Norwegian should be shipshape soon enough, barring further COVID outbreaks and disruptions.
International geopolitical events aside, Norwegian Cruise Line's depressed stock looks like an opportunity to set sail on a journey to higher future returns.
