Miami-based Carnival Corporation (CCL) is slated to release its third quarter 2011 earnings results on September 20, before the opening bell. Carnival expects earnings in the range of $1.60–$1.64 per share. The Zacks Consensus Estimate for the third quarter is pegged at $1.63, reflecting a 0.94% decline year over year and within the guidance range.
Carnival, the world’s biggest cruise line operator, has outperformed the Zacks Consensus Estimate in three out of the last four quarters. The earnings surprise ranges from negative 3.12% to positive 18.18%, with the average being 9.10%.
Second Quarter Recap
Carnival’s second quarter 2011 earnings of 26 cents per share surpassed the Zacks Consensus Estimate of 22 cents but showed deterioration from 32 cents earned in the year-ago quarter.
While earnings were aided by better-than-expected net revenue yields in North America brands, persistent hikes in fuel prices, geo-political turmoil and the disaster in Japan were the dampeners.
Total revenue increased 10.8% from the prior-year quarter to $3.6 billion, beating the Zacks Consensus Estimate of $3.5 billion.
Agreement of Analysts
Revision trend in the last 30 days was skewed slightly toward the positive side for the third quarter, with one out of 11 analysts covering the stock raising the estimate and none moving in the opposite direction. In the last 7 days, none of the analysts revised the estimate, thus providing a maintained outlook.
For fiscal 2011, estimates were slashed by 4 out of 16 analysts and lifted by one over the last 30 days. In the last 7 days, one analyst increased the estimate and one decreased the same, indicating no clear outlook.
Magnitude of Estimate Revisions
Over the past 30 days, Carnival’s estimate has been dropped by a penny to $2.44 for full fiscal 2011. However, for the third quarter, the estimate remained intact at $1.63.
Our Take
We expect Carnival’s third quarter results to benefit from a surge in demand owing to the summer months in Northern Hemisphere. In fact, every year, Carnival typically generates its highest earnings at this time. Presently, the pricing environment in North America is better than what it was last year. Caribbean pricing is expected to be strong by the fourth quarter of 2011.
Although political disturbances in Middle East and North Africa as well as the earthquake in Japan are currently acting as major hindrances to the company’s growth, the adverse impact from these dual challenges are already factored in the company’s guidance.
Surging fuel prices remain another cause for concern. Keeping this in mind, management has already lowered its expectation by a nickel. Hence, Carnival is expected to report in line with the Zacks Consensus Estimate.
On the flip side, significant exposure to the sluggish European market and seasonally weaker fourth quarter will remain headwinds for the company, going forward. Carnival, which competes with Royal Caribbean Cruises Ltd. (RCL), currently retains a Zacks #3 Rank (short-term Hold rating). We also reiterate our long-term Neutral recommendation.
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