What's In The Cards For Carnival (CCL) In Q2 Earnings?

Carnival (LON:CCL) Corporation (NYSE:CCL) is set to report second-quarter fiscal 2016 results on Jun 28. Last quarter, the company posted a positive earnings surprise of 25.81%.

In fact, Carnival has surpassed earnings estimates in the trailing four quarters with an average positive earnings surprise of 27.84%.

Factors to Consider

The company’s efforts to enhance sustainability, improve environmental friendliness, and meet air emission standards through scrubber technology and exhaust-gas cleaning scrubber installations have increased expenses. Further, the company is incurring marketing costs to increase cruise bookings and expenses related to ship launches. Carnival’s high expenses are expected to continue to hurt earnings in the to-be-reported quarter.

CARNIVAL CORP Price and EPS Surprise

CARNIVAL CORP Price and EPS Surprise | CARNIVAL CORP Quote

Also, negative currency translation remains a concern for Carnival in the second quarter. 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 to-be reported quarter.

The economic slowdown in China, where Carnival has a large exposure, is likely to hurt second quarter revenues as well.

Nevertheless, Carnival has delivered strong earnings over the past few quarters and we expect the trend to continue in second quarter 2016. 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.

Earnings Whispers

Our proven model does not conclusively show that Carnival is likely to beat estimates this quarter. This 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. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Carnival has an earnings ESP of -5.13%. This is because the Most Accurate estimate stands at 37 cents per share while the Zacks Consensus Estimate is pegged higher at 39 cents per share.

Zacks Rank: Carnival’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks 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. (NYSE:MTN) , with an Earnings ESP of +0.24% and a Zacks Rank #2.

Boyd Gaming Corporation (NYSE:BYD) with an Earnings ESP of +19.35% and a Zacks Rank #3.

Wyndham Worldwide Corporation (NYSE:WYN) , with an Earnings ESP of +1.46% and a Zacks Rank #3.