Thursday, May 14, 2020

Will Norwegian Cruise Line Sail Through the Crisis?

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What’s happening: Norwegian Cruise Line Holdings is all set to report its earnings results for the first quarter before the opening bell on Thursday, May 14.

What happened: The coronavirus pandemic has resulted in severe challenges for the cruise industry, forcing firms to dock their vessels at port till the crisis passes.

Norwegian is the smallest among the three cruise companies in the US to release its quarterly earnings today. After the US government left the company out of its coronavirus stimulus, the Miami, Florida-based company had to turn to the capital markets to arrange for funds to ensure its survival.

Although the stock has been hit hard by the pandemic, losing more than 80% over the past three months, Norwegian’s strong record of beating earnings estimates and CEO Frank Del Rio’s recent comments provide some relief to investors.

Expectations for the quarter: The cruise company is expected to report a triple-digit decline in earnings metrics for the quarter.

  • Norwegian Cruise’s revenue is expected to decline by 10.7% to $1.25 billion.
  • The consensus estimate for earnings stand at 49 cents per share, down a staggering 159% from the same quarter last year.

Why it matters: Lower passenger tickets and onboard revenue due to the coronavirus pandemic are expected to hurt the company’s first-quarter results. Various cruise cancellations following the lockdown orders by the government and travel warnings have impacted the company’s business.

On a positive note, Norwegian’s CEO Frank Del Rio released some upbeat comments about the company’s prospects after raising $2.4 billion of additional capital from the markets. The capital raise provides some relief for the company to tide through the lockdown and travel restrictions. The company now has sufficient liquidity to survive for at least 18 months without generating any revenue, Del Rio said.

With the largest rival, Carnival, planning to resume some cruises from August, there is a ray of hope for cruise companies. Carnival has reported a rise in bookings, which bodes well for Norwegian.

How the shares have performed so far: Shares of Norwegian Cruise Line have performed much worse than its rivals, with the stock down 83% year to date, while that of Carnival and Royal Caribbean have fallen 76% and 74%, respectively. Norwegian’s stock declined by 7% during the regular session yesterday but rose 3% in after-hours trading.

What to watch: With the company having a strong track record of exceeding earnings expectations over the past two years, Norwegian Cruise Line is under pressure to at least meet the estimates this time. Investors will look out for updates on the virus impact on the company’s business and any cost-cutting measures that it plans. Markets are also keen to know any plans to resume the company’s operations.

The Markets Today

     

European markets will be in focus today, ahead of some major economic reports from the region’s countries.

Context: European stocks closed sharply lower on Wednesday due to investor concern around a second wave of COVID-19 infections after economies start loosening lockdown restrictions.

Details: The pan-European Stoxx 600 index tumbled 1.94% yesterday, with all sectors closing in negative territory. Travel and leisure stocks were the worst performers, declining 4.8%.

Several countries in Asia, including China and South Korea, have witnessed a rise in coronavirus cases following the easing of lockdown restrictions.

In the UK, recent reports showed that the country’s economy contracted 2% in the first quarter. Although the figures came in better than projected, it was the worst reading for the country since the financial crisis.

The German DAX 30 closed lower by 2.56% on Wednesday, while French CAC 40 declined by 2.85%.

Shares of ABN Amro Bank NV shed more than 9% yesterday, after the bank reported a loss due to €1.11 billion in impairment charges. TUI AG’s stock slipped 2% after the German group posted wider losses and announced plans to cut up to 8,000 jobs. Commerzbank’s shares declined by 7% after the German lender swung to a loss of €295 million in the first quarter due to a rise in loan loss provisions.

What to watch: Investors will continue to focus on daily coronavirus figures, with the total number of cases exceeding 4,347,010 globally. The UK now has the highest number of COVID-19 cases in Europe, confirming more than 230,980 cases and 33,260 deaths. The numbers of positive cases in Spain have exceeded 228,690 with 27,100 fatalities.

Investors await a basket of economic reports from European nations, including French unemployment rate, Spanish inflation rate, Italian balance of trade and German wholesale prices and inflation rate.

The unemployment rate in France is expected to rise to 8.4% in the first quarter, from 8.1% in the fourth quarter. The annual inflation rate in Germany is likely to fall to 0.8% in April, while consumer prices in Spain are expected to decline 0.7% in April.

Other Markets: US indices closed lower on Wednesday, with the Dow, S&P 500 and Nasdaq 100 down by 2.17%, 1.75% and 1.55%, respectively.

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Japan’s machine tool orders, Indian wholesale price index, Turkey's industrial production and retail sales, Canada’s new motor vehicle sales and manufacturing sales, Mexico’s interest rate decision, China’s foreign direct investment, Argentina’s inflation rate as well as the US initial jobless claims, export prices, import prices and natural gas stocks change.