Will Carnival (CCL) Surprise This Earnings Season? - Analyst Blog

We expect Carnival Corporation CCL to beat earnings expectations when it reports fiscal first-quarter 2014 results before the opening bell on March 25.

Why a Likely Positive Surprise?

Our proven model shows that Carnival Corporation has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP: The Earnings ESP for Carnival Corporation, which is the difference between the Most Accurate estimate (loss of 6 cents) and the Zacks Consensus Estimate (loss of 8 cents) stands at +25.00%. This indicates a likely positive earnings surprise.

Zacks Rank: Carnival Corporation's Zacks Rank #2 (Buy) increases the predictive power of its ESP. The combination of its Zacks Rank and Earnings ESP makes us confident of a positive earnings surprise in the to-be-reported quarter.

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.   

Expected Earnings Drivers

We believe the Miami-based cruise line operator's turnaround remains on track after the Costa disaster dealt a blow to its image and profitability. In the last quarter, increased revenues helped the company to post earnings of 4 cents per share outpacing the Zacks Consensus Estimate of a breakeven result.

Carnival's top line has been strong for the past two quarters and this quarter is not expected to be any different. We believe in fiscal first quarter, revenue growth — driven by brand-building efforts and other marketing promotions — will be the major driver of earnings. In fact, Carnival's recent partnership with Dr. Seuss Enterprises – a toy manufacturer based on characters from Dr. Seuss books – to provide a variety of exciting and immersive dining and entertainment experiences on its fleet of 24 "Fun Ships” is expected to be beneficial to the cruise line operator.

Carnival's large scale operations allow it to exploit opportunities for global growth faster and with superior penetration. The company's expansion in the emerging markets of Asia, which is developing as a major tourist destination due to scenic islands, is also encouraging. Last year, the company expanded in China to enhance its Princess subsidiary and is poised to tap the increasing demand for cruises.

Even though management expects first-quarter earnings to be lower than last year's figures, the headwinds – higher operating costs and expensive promotional activity – appear to be temporary. We believe the company is already taking steps to improve operating costs, and reduction in fuel consumption is another bright spot on Carnival's report card.

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:

Norwegian Cruise Line Holdings Ltd. NCLH, Earnings ESP of +4.55% and a Zacks Rank #3 (Hold).

Las Vegas Sands Corp. LVS, Earnings ESP of +1.11% and a Zacks Rank #3.

McDonald's Corp. MCD, Earnings ESP of +0.81% and a Zacks Rank #3.