Earnings Preview: Carnival

Miami-based Carnival Corp. (CCL), which offers various itineraries to passengers worldwide under the leading cruise brands, is slated to release its third quarter 2010 earnings on September 21. The current Zacks Consensus Estimate for the third quarter is $1.47 per share, representing an annualized growth rate of 10.2%.

Carnival has outperformed the Zacks Consensus Estimate over the trailing four quarters, with earnings surprises varying in the range of 6.7% to 69.2%. The average earnings surprise was 27.2%. This implies that the company has beaten the Zacks Consensus Estimate by this magnitude over the last four quarters.

Previous Quarter Performance

Carnival reported second quarter 2010 earnings of 32 cents per share, which was ahead of the Zacks Consensus Estimate of 30 cents, driven by better-than-expected net revenue yields, coupled with an increase in capacity and ongoing cost-reduction initiatives, which more than offset a substantial hike in fuel prices.

Total revenue increased 10.3% year over year to $3.2 billion. Net revenue yield at current dollar increased 2.4% from the prior-year quarter, largely attributable to a favorable foreign exchange rate.


For the third quarter of 2010, the company expects net revenue yield to remain in the range of flat to up 1% (5%–6% on a constant dollar basis). Based on current fuel prices and currency exchange rates, Carnival Corporation expects earnings for the third quarter to range between $1.43 and $1.47 per share.

For fiscal 2010, Carnival Corporation reiterated its guidance for net revenue yield growth of 2% to 3% on a constant dollar basis. Carnival Corporation maintained its earnings expectation for full year 2010 at $2.25 to $2.35.

Estimates Revisions Trend

Estimates for the coming quarter remain unchanged in the last 30 days, implying that the analysts are maintaining their view on the stock.

Agreement of Analysts

In the last 30 days, out of 13 analysts covering the stock, one analyst lowered the third quarter estimate while none went in the opposite direction. However, estimates for fiscal 2010 and 2011 were increased by 2 and 3 analysts out of 18 analysts, respectively, while one broker slashed the same.

The analysts, by and large, remained optimistic on Carnival’s coming quarterly as well as fiscal results. A recovery in pricing fueled by the resurgence in consumer demand outpacing supply growth, comparatively favorable fuel and foreign currency movements as well as increased on-board spending triggered off the positive stance.

For the coming quarter, estimate was trimmed over the last 7 days by one analyst.

Magnitude of Estimate Revisions

Over the past 30 days, Carnival’s estimates for the upcoming quarter and fiscal year did not budge while estimates for the fourth quarter as well as fiscal 2011 were raised by a penny. Currently, the Zacks Consensus Estimates for the third quarter, fiscal 2010 and 2011 are a respective $1.47, $2.35 and $2.75 per share.

Our Take

We expect Carnival to benefit from moderate fuel costs in the third quarter. A strong booking momentum and pricing trend along with successful cost-containment efforts will also likely pay off for the company, going forward. Although the dollar has strengthened year over year, magnitude remained lower than expected, providing a boost to Carnival’s third quarter earnings.

The company’s cost-reduction programs are yielding more-than-expected savings in areas such as insurance, ports and crew travel. Moreover, the company’s 2010 tax rate is also expected to be lower due to the income tax benefit received under the Italian investment incentive law. However, greater exposure to a sluggish European market and overall economic uncertainty will prove to be headwinds for Carnival. Hence, the company has a Zacks #3 Rank (short-term Hold recommendation) on the shares. We also reiterate our long-term Neutral rating.

CARNIVAL CORP (CCL): Free Stock Analysis Report

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