Cruise company Norwegian Cruise Line (NYSE:NCLH) fell short of analysts' expectations in Q1 CY2024, with revenue up 20.3% year on year to $2.19 billion. It made a non-GAAP profit of $0.16 per share, improving from its loss of $0.30 per share in the same quarter last year.

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“We are pleased to report that we exceeded our guidance metrics for the first quarter of 2024. Thanks to robust consumer demand and continued success on our operational efficiency efforts, we are raising our 2024 full-year guidance for key metrics including Net Yield, Adjusted EBITDA and Adjusted EPS,” said Mark A. Kempa, Executive Vice President and Chief Financial Officer of Norwegian Cruise Line Holdings Ltd.

With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE:NCLH) is a premier global cruise company.

Hotels, Resorts and Cruise Lines

Hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Sales Growth

Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Norwegian Cruise Line's annualized revenue growth rate of 7.7% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new property or emerging trend. That's why we also follow short-term performance. Norwegian Cruise Line's annualized revenue growth of 176% over the last two years is above its five-year trend, suggesting some bright spots.

This quarter, Norwegian Cruise Line generated an excellent 20.3% year-on-year revenue growth rate, but its $2.19 billion of revenue fell short of Wall Street's high expectations. Looking ahead, Wall Street expects sales to grow 5.3% over the next 12 months, a deceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

While Norwegian Cruise Line posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Norwegian Cruise Line's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 8.2%.

Norwegian Cruise Line's free cash flow came in at $548.3 million in Q1, equivalent to a 25% margin and up 106% year on year.

Key Takeaways from Norwegian Cruise Line's Q1 Results

Although Norwegian Cruise Line's revenue missed this quarter, we were impressed by how significantly it blew past analysts' adjusted EBITDA and EPS expectations. That was driven by higher efficiency and leverage on its fixed costs. We were also glad it raised its full-year earnings guidance, slightly exceeding Wall Street's estimates.

Occupancy during the quarter clocked in at 104.6%, and the company noted it received an "unprecedented level of advance ticket sales". These strong numbers likely contributed to its recent decision to build eight new vessels.

Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The market was likely expecting more, and the stock is down 4.5% after reporting, trading at $18.05 per share.

So should you invest in Norwegian Cruise Line right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.