Norwegian Cruise predicts lower profit due to increased costs; shares plummet.

Norwegian Cruise predicts lower profit due to increased costs; shares plummet.

Norwegian Cruise Line Faces Challenges Despite Strong Demand

Norwegian Cruise Line

Norwegian Cruise Line (NCLH.N) has forecasted a downbeat third-quarter profit following a strong second quarter, leading to a more than 13% drop in the company’s shares. While the company has been benefiting from robust demand and higher ticket prices, elevated costs have been a nagging issue for most cruise operators.

The cruise industry has seen a surge in demand as people prefer the convenience and variety of activities offered on cruises compared to more expensive land-based vacations. Passengers can enjoy a wide range of fun activities under one roof, making it an attractive option for leisure travel.

Last week, Royal Caribbean (RCL.N) forecasted an upbeat third-quarter profit and raised its annual profit expectations. This positive forecast set a high bar for Norwegian Cruise Line, leading to disappointment among investors when the company’s slight raise to its annual adjusted EBITDA guidance fell short.

Norwegian Cruise Line now expects its annual adjusted EBITDA, a key measure of profitability, to be between $1.85 billion and $1.95 billion. The company has also raised its 2023 adjusted profit forecast to 80 cents per share, up from 75 cents. However, for the third quarter, Norwegian Cruise Line’s adjusted profit forecast of 70 cents per share fell below analysts’ average estimate of 79 cents.

Despite implementing price hikes on its itineraries, Norwegian Cruise Line has been facing challenges from higher borrowing costs, inflation, a stronger U.S. dollar, spiraling marketing expenses, and rising labor costs. In the second quarter ended June 30, the company’s total cruise operating expenses jumped 29% to $1.38 billion.

Norwegian Cruise Line’s rival, Carnival (CCL.N), has also projected a third-quarter profit below estimates, signaling that marketing and labor costs are eating into gains from higher ticket prices and steady demand. As a result of Norwegian Cruise Line’s forecasted downbeat third-quarter profit, shares of Carnival and Royal Caribbean were down about 4.1% and 2.2%, respectively.

On a more positive note, Norwegian Cruise Line’s revenue rose 85.8% to $2.21 billion in the reported quarter, surpassing estimates of $2.17 billion. Additionally, the company achieved an adjusted profit of 30 cents per share, exceeding expectations of 27 cents, according to Refinitiv.

Despite the challenges faced, Norwegian Cruise Line continues to demonstrate resilience in a difficult operating environment. The company’s ability to adapt and navigate through these obstacles while maintaining strong demand and revenue growth will be crucial for its long-term success in the cruise industry. Investors will be closely watching how Norwegian Cruise Line tackles its cost issues and sustains its profitability in the face of rising expenses.

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