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Will Norwegian Cruise Line (NCLH) Q3 Earnings Disappoint?

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Norwegian Cruise Line Holdings Ltd.(NCLH - Free Report) is scheduled to report third-quarter 2016 results, before the market opens on Nov 9.

In the second quarter of 2016, the company posted a negative earnings surprise of 6.02%. In fact, the global cruise company has a dismal record with respect to bottom-line performance. The Miami-based company missed the Zacks Consensus Estimate in each of the last four quarters with an average earnings miss of 9.72%.

The company is likely to underperform in the third quarter as well. The negative sentiment surrounding the stock ahead of its third-quarter earnings release can be gauged by the 11.7% decrease in the Zacks Consensus Estimate over the last three months.

NORWEGIAN CRUIS Price and EPS Surprise



Our quantitative model too does not hint at an earnings beat in the third quarter as it lacks the perfect combination of two key ingredients.

Zacks ESP: The Earnings ESP for Norwegian Cruise Line is -0.63%. This is because the Most Accurate estimate is a penny lower than the Zacks Consensus Estimate of $1.59 per share. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Norwegian Cruise Line carries a Zacks Rank #4 (Sell). Please note that we advise investors against considering Zacks Rank #4 or 5 (Sell-rated) stocks going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Conversely, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings estimates.

Factors Likely at Play this Quarter

We expect the company’s results to be hurt by the declining cruise demand. The tough operating environment, particularly in Europe, is likely to be a major drag on third-quarter earnings. Norwegian Cruise Line has a significant exposure to Europe (32% of its capacity). Consequently, weakness in this key market – due to headwinds like the surge in terror attacks – might severely affect the company’s third-quarter earnings.

On the other hand, increase in the company’s Caribbean capacity is likely to hurt results due to pricing pressures. Adverse foreign currency movements are also likely to limit growth. Moreover, competition from the likes of Carnival Corporation (CCL - Free Report) and Royal Caribbean Cruises Ltd. (RCL - Free Report) raise concerns.

While releasing its second-quarter results, the cruise line operator had projected 2016 earnings per share (on an adjusted basis) in the range of $3.35 to $3.45. Given the tough operating environment and the other risks discussed above, the company is quite likely to provide a tepid fourth quarter and full-year guidance.

A Stock to Consider

Here we present a stock from the broader Consumer Discretionary sector which you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Cinemark Holdings Inc. (CNK - Free Report) , which isscheduled to release its third-quarter results on Nov 8, has an earnings ESP of +1.82% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.  

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