Norwegian Cruise Stock Sinks After Earnings Beat. What’s Worrying Wall Street.

Norwegian Cruise Line reported better-than-expected earnings in its third quarter but revenue missed analysts’ expectations. (Sam Greenwood/Getty Images)

Key Points

• Norwegian Cruise Line Holdings falls after reporting revenue below analysts’ expectations.
• Adjusted earnings of $1.20 a share exceed forecasts.
• Norwegian trims its full-year outlook for net yield.

Norwegian Cruise Line Holdings stock fell sharply Tuesday even after the cruise operator beat earnings estimates. There’s more to the story.

Adjusted earnings of $1.20 a share topped the $1.16 consensus among analysts polled by FactSet. While revenue climbed 4.7% to $2.94 billion, it was below the $3.02 billion Wall Street had anticipated.

Shares declined 15% to $18.86 following the report. The benchmark S&P 500 index was down 1.1%.

The revenue miss wasn’t the only shortcoming. Norwegian trimmed its full-year outlook for net yield, a metric described as “the most relevant measure of our pricing performance.” The cruise operator now expects net yield to 2.3% to 2.4%, or 2.4% to 2.5% in constant currency, down from 2.5% previously.

The metric increased roughly 1.6% on an as-reported basis and 1.5% on a constant currency basis, in line with the company’s own expectations, in the third quarter. However, this was below analysts’ calls for 1.7% growth and Mizuho’s more bullish forecast for 2%.

Even before Tuesday’s selloff, Norwegian stock was down 14% for the year, compared with a 17% rise for the S&P 500.

Investors are clearly trying to digest some “marginal softness” in the second half of the year within the broader cruise category, Mizuho asserted. The firm believes this trend has been apparent since peer Carnival reported earnings in September.

Even as Carnival hiked its guidance and posted better-than-expected earnings and revenue, the stock declined. Melius Research asserted at the time that a run-up in the stock price ahead of the report likely had prompted the selloff.

Including Tuesday’s losses, Norwegian stock has fallen 27% for the year. Carnival and Royal Caribbean Group have fared considerably better, rising 5.1% and 14%, respectively.

While performance is mixed within the peer group, some investors are worried about softening demand for cruises as would-be travelers cut back on spending following a post-pandemic travel boom. Norwegian’s latest results don’t serve to alleviate those concerns.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com and George Glover at george.glover@dowjones.com