Carnival Corporation CCL is set to report first-quarter 2016 results on Mar 30. Last quarter, the company posted a positive earnings surprise of 21.95% driven by higher-than-expected revenue yields. In fact, Carnival has surpassed the earnings estimates in all the trailing four quarters with an average positive earnings surprise of 51.95%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Carnival’s high expenses are expected to continue to hurt earnings in the to-be-reported quarter. The company’s efforts to enhance sustainability, improve environmental friendliness, and meet air emission standards through scrubber technology and exhaust-gas cleaning scrubber installations would increase expenses. Further, the company is incurring marketing costs to increase cruise bookings and expenses related to ship launches.
Also, negative currency translation remains a concern for Carnival in the first quarter. The U.S. dollar continues to trade at multi-year highs against foreign currencies in 2016. With a major part of Carnival’s revenues coming from international markets, profits will be hurt by negative currency translation. Further, onboard spending by foreign guests would remain under pressure, thus hurting the top line in the coming quarter.
The economic slowdown in China, where Carnival has a large exposure, is likely to hurt first-quarter revenues.
Nevertheless, Carnival has delivered strong earnings over the past few quarters and we expect the trend to continue in first-quarter 2016 as well. In fact, management expects revenue yields to increase year over year mainly on the back of strong bookings in the Caribbean, European and Alaskan regions.
Moreover, the Florida-based cruiser’s large-scale operations allow it to exploit global growth opportunities. The company’s expansion in the emerging Asia-Pacific markets like Australia, which are gaining popularity as a tourist destination, is also encouraging. The company has substantially improved the capacity in the Australia and we expect first-quarter revenues to gain from it.
Earnings Whispers
Our proven model does not conclusively show that Carnival 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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: The company’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 31 cents.
Zacks Rank: Carnival’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement.
Stocks to Consider
Here are some stocks in the sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Vail Resorts Inc. MTN, with an Earnings ESP of +0.24% and a Zacks Rank #2.
Norwegian Cruise Line Holdings Ltd. NCLH with an Earnings ESP of +2.63% and a Zacks Rank #3.
Planet Fitness, Inc. PLNT, with an Earnings ESP of +7.69% and a Zacks Rank #2.
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