Florida-based cruiser Carnival Corporation (CCL) is set to report third-quarter 2014 results on Sep 23, 2014, before the opening bell. Last quarter, it posted a positive earnings surprise of 400.0%, driven by better-than-expected top line. Let’s see how things are shaping up for the upcoming announcement.
Factors to Consider This Quarter
We believe the cruise line operator’s turnaround remains on track after the 2012 Costa disaster dealt a blow to its image and profitability. In the last quarter, better-than-expected revenues helped the company post earnings of 10 cents, better than the Zacks Consensus Estimate of a loss of 8 cents.
Carnival has delivered strong top-line numbers over the past few quarters. Even though management expects third-quarter revenue yields to be lower than last year, revenues are expected to improve in the third quarter driven by better booking environment, higher ticket pricing and the brand-building efforts and other marketing promotions.
Moreover, Carnival's large-scale operations allow it to exploit global growth opportunities faster. The company’s expansion in the emerging markets of Asia – like China and Australia, which is gaining popularity as a tourist destination, is also encouraging. In our view, the Asia Pacific region is an attractive bet for Carnival because of the stable economy and growing affluent middle class.
Also, Carnival’s partnership with Dr. Seuss Enterprises (which started in April this year) — a toy manufacturer based on characters from Dr. Seuss books — to provide exciting and immersive dining and entertainment experiences on its fleet of 24 "Fun Ships” is expected to be beneficial.
However, the company is facing some headwinds like higher operating costs and expensive promotional activity. Although the company is already taking steps to improve operating costs and reduce fuel consumption, higher fuel cost is expected to be a drag on the third-quarter earnings. Additionally, costs related to Carnival’s plans to reduce pollution generated by its ships will add to the escalating expenses.
Earnings Whispers?
Our proven model does not conclusively show that the company is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Carnival is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.43.
Zacks Rank: Carnival has a Zacks Rank #2 (Buy) which when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the same sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
MGM Resorts International (MGM), with an Earnings ESP of +14.29% and a Zacks Rank #2.
Malibu Boats, Inc. (MBUU), with an Earnings ESP of +5.00% and a Zacks Rank #1 (Strong Buy).
The Walt Disney Co. (DIS), with an Earnings ESP of +5.75% and a Zacks Rank #2.
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