Why Norwegian Cruise Line Stock Is Sinking
Key Points
High fuel costs and reduced travel demand are weighing on Norwegian's results.
The company's turnaround plans need more time to take hold.
Shares of Norwegian Cruise Line Holdings (NYSE: NCLH) fell on Thursday after the fleet manager slashed its full-year earnings guidance.
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Norwegian is battling rough seas
Norwegian's revenue rose 4.9% year over year to $2.6 billion in the second quarter, mainly due to increased capacity days.
However, the cruise ship operator's net yield -- a key measure of profitability -- declined by 2.6% on a constant-currency basis.
Norwegian said bookings were being pressured by the ongoing conflict in the Middle East, as well as its own operational issues. Higher fuel costs are also weighing on Norwegian's profits.
To counter these challenges, management is implementing a cost-reduction program to achieve projected annual savings of $100 million. New attractions at Norwegian's resorts are also expected to boost travel demand.
All told, Norwegian's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) decreased 4.1% to $666 million. Its adjusted earnings per share declined 6.6% to $0.48.
Management needs more time to find calmer water
Investors were more concerned about Norwegian's guidance. The cruise line cut its full-year adjusted earnings target to $1.50 per share, down from a prior forecast of $1.45 to $1.79.
"While we are confident in the strength of our brands and the long-term benefits of the actions underway, we are still in the early stages of our turnaround," CEO John Chidsey said.
Joe Tenebruso 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.