Norwegian Cruise cuts profit forecast as Middle East conflict raises fuel costs
Impact of Middle East Conflict on Norwegian Cruise Line's Financial Outlook
By Anuja Bharat Mistry
Profit Forecast Reduction and Market Reaction
May 4 (Reuters) - Norwegian Cruise Line cut its annual profit forecast on Monday, as the cruise operator battles with surging fuel costs linked to the war in Iran as well as tepid demand for its sea voyages, sending its shares down 6% in premarket trading.
Oil Prices Surge Amid Regional Instability
Global oil prices have jumped above $100 a barrel after U.S. and Israeli strikes on Iran led to the closure of the Strait of Hormuz, the Gulf's vital maritime chokepoint. More than $50 billion worth of crude oil supply had been lost since the start of the Iran war, according to Reuters calculations as of mid-April.
Industry-Wide Effects
Rivals Carnival and Royal Caribbean have also highlighted potential hits from rising fuel costs, and several global airlines have warned of jet fuel shortages.
Travel Demand and Revenue Pressures
Meanwhile, the conflict has forced consumers to re-evaluate travel plans, particularly to Europe, Norwegian said, adding to revenue pressures for the company, which said its current booking range was below optimal due to execution missteps that led to shorter itineraries in the Caribbean.
Updated Financial Guidance
Norwegian now expects fiscal 2026 adjusted profit between $1.45 and $1.79 per share, compared with its prior forecast of $2.38.
Its first-quarter revenue of $2.33 billion missed analysts' average estimate of $2.36 billion, according to data compiled by LSEG.
Turnaround Efforts and Leadership Changes
Still, the company expects annual cost savings of about $125 million from its turnaround efforts under new CEO John Chidsey. It also sees full-year adjusted net cruise cost, excluding fuel, to be about flat, compared with a 1% rise in the year earlier.
CEO's Turnaround Plan
Chidsey, who took the helm in February, outlined a turnaround plan focused on tighter financial discipline and better execution.
Activist Investor Influence
The changes follow pressure from activist investor Elliott Investment Management, now Norwegian's largest shareholder, which resulted in the appointment of five new board members in March.
Analyst and Market Response
"We see the guidance reduction as a potential clearing event, with management execution now doubly important to return NCLH to a positive earnings cadence," Jefferies analysts said in a note.
The company reported quarterly adjusted profit of 23 cents, beating estimates of 14 cents.
(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Leroy Leo)
