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Will Carnival (CCL) Surprise This Earnings Season?

Zacks Equity Research

Miami-based cruise company, Carnival Corp. (CCL), is set to report fourth-quarter fiscal 2013 results on Dec 19, before the market opens. Last quarter, the company posted a 6.15% positive surprise. Let us see how things are shaping up for this announcement.

Factors to Consider this Quarter

Carnival’s top line has been weak since the past 2–3 quarters due to lower net revenue yields. This quarter is not expected to be any better than the last one. The company expects net revenue yield (in constant dollar) to decline in the range of 3% to 4% in fourth-quarter fiscal 2013. In the wake of several accidents, Carnival had to resort to marketing initiatives and price promotions to trigger bookings, which significantly pulled down the net revenue yields.

Net cruise costs per available lower berth day (:ALBD) (in constant dollar), excluding fuel, are projected to increase 3.5%−4.5% in the fourth quarter, resulting from increased advertising expenses and higher repairing costs. 

The company expects loss of 3 cents per share to earnings of 3 cents per share in the fourth quarter, significantly lower than the year-ago earnings of 13 cents per share. Earnings in the quarter are expected to be hurt by increased costs and currency headwinds,

Further, the prevailing economic uncertainty, especially in Europe poses a major threat to the company. However, reduction in fuel consumption is one bright spot in Carnival’s report card. We believe that although the cruise company is trying to recover from the Costa disaster, it will take some time to completely swing back to profitability.

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, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP:  The Earnings ESP is 0.00%.

Zacks Rank:Carnival carries a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #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 you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

Snyder's-Lance, Inc. (LNCE), with Earnings ESP of +5.56% and a Zacks Rank #3 (Hold).

Mondelez International, Inc. (MDLZ), with Earnings ESP of +2.33% and a Zacks Rank #3 (Hold).

Lorillard, Inc. (LO), with Earnings ESP of +1.18% and a Zacks Rank #3 (Hold).

Read the Full Research Report on CCL
Read the Full Research Report on LO
Read the Full Research Report on LNCE
Read the Full Research Report on MDLZ

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