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Norwegian (NCLH) to Report Q3 Earnings: What's in Store?

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Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) is slated to release third-quarter 2018 results on Nov 8, before market open.

In the second quarter of 2018, the company delivered a positive earnings surprise of 17.5%. Norwegian Cruise Line also has an impressive track record with respect to earnings per share. It surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being approximately 9.7%.

However, things do not look rosy for this Miami, Fl-based cruise company for the soon-to-be-reported quarter mainly due to high costs. The negative sentiment surrounding the stock can be gauged from the fact that the Zacks Consensus Estimate for the third quarter moved south almost 1% over the last 90 days.

Given this backdrop, lets delve deep to find out the factors likely to impact Norwegian Cruise Line’s third-quarter results.

High fuel costs are expected to limit bottom-line growth as has been the case over the past few quarters. The company expects fuel price per metric ton, net of hedges, to increase 5% sequentially to $505.

Currently, high oil prices do not bode well for travel-focussed companies like Norwegian Cruise Line as fuel costs account for a significant chunk of their expenditures. Investments undertaken by the company to upgrade the facilities for travel are also pushing up costs. The Zacks Consensus Estimate for third-quarter Net Cruise Cost (Gross Cruise Cost less commissions, transportation and other expenses) per Capacity Day reflects a year over year increase of 7.5%.

However, Norwegian Cruise Line’s top line in the third quarter is likely to be driven by higher ticket revenues on the back of increased demand for cruise travel. Also, improved pricing should boost the company’s revenue growth. The Zacks Consensus Estimate for passenger ticket revenues in the to-be-reported quarter is pegged at $1,339 million, above $1,192 million registered in the third quarter of 2017.

We note that increased passenger ticket revenues led to top-line growth of 8.8% at Royal Caribbean Cruises Ltd. (RCL - Free Report) in the third quarter of 2018.

Onboard and Other revenues are also expected to improve at Norwegian Cruise Line in the quarter to be reported. The Zacks Consensus Estimate for the segment’s revenues is pegged at $501 million, reflecting a year-over-year increase of almost 9%.

What Does Our Model Say?

Our proven model too does not show conclusively that Norwegian Cruise Line will beat earnings in third-quarter 2018. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. However, that is not the case as highlighted below.

Earnings ESP: Norwegian Cruise Line has an Earnings ESP of -2.10%. The Most Accurate Estimate is pegged at $2.16 per share, 5 cents lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Norwegian Cruise Line carries a Zacks Rank #3.

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Consumer Discretionary sector may consider the following companies from the same space, which according to our model have the right combination of elements to post an earnings beat in their next releases:

Viacom, Inc. (VIAB - Free Report) has an Earnings ESP of +0.86%. This Zacks #3 Ranked company is scheduled to report fourth-quarter fiscal 2018 results on Nov 16. You can see the complete list of today’s Zacks #1 Rank stocks here.

NIKE, Inc. (NKE - Free Report) has an Earnings ESP of +0.86%. This Zacks #3 Ranked company is expected to report second-quarter fiscal 2019 results on Dec 20.

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