Will Robust Top Line Favor Carnival's (CCL) Q2 Earnings?

Carnival (LON:CCL) Corporation (NYSE:CCL) is scheduled to report second quarter of fiscal 2018 results on Jun 25, before the opening bell.

The company’s overall top line is likely to witness an uptick in the second quarter, given robust performance across Passenger Tickets business, and Onboard and Other segments. Higher revenues and revenue yields are likely to boost earnings as well.

Notably, shares of Carnival have lost 5.2% in the past year against the industry’s growth of 2.8%.

Let’s delve deeper into the factors that might have shaped up the company’s second-quarter results.

Top Line to Gain From Higher Segmental Revenues

Carnival generates revenues from Passenger Tickets business, Onboard and Other, as well as Tour and Other segments. The Zacks Consensus Estimate for second-quarter total revenues is pegged at $4.3 billion, reflecting an increase of 9.8% from the year-ago quarter.

Also, in the last reported quarter, the company’s top line grew 11.6% year over year, reflecting sales strength across all segments. The upside trend is likely to have continued in the second quarter as well.

Passenger Tickets revenues are expected to increase year over year, driven by price improvements in Carnival’s European, Caribbean and Alaska programs. The Zacks Consensus Estimate for the segment’s second-quarter revenues is pegged at $3.2 billion, reflecting a year-over-year increase of 10.1%. In the first quarter, passenger tickets revenues improved 8.3% year over year.

Onboard and Other revenues will carry on the momentum of the first quarter (up 7.3% year over year) and are anticipated to further improve in the quarter to be reported. Higher onboard spending by guests and capacity rise in available lower berth days (ALBD) are expected to drive the growth. The Zacks Consensus Estimate for the segment’s revenues is pegged at $1.1 billion, reflecting a year-over-year increase of 9.3%.

Tour and Other revenues are expected to increase, given robust booking trends. The Zacks Consensus Estimate is pegged at $43.2 million, reflecting a year-over-year increase of 16.8%.

Meanwhile, per the consensus estimate, net revenue yield is likely to improve 8.1% year over year in the second quarter, following the 3.9% increase in the last reported quarter. The upside trend is attributed to higher net ticket, and net on-board and other yields. The company however expects net revenue yield to improve in the band of 2.5-3.5% year over year in the to-be-reported quarter.

Top Line to Drive EPS

Even though the company anticipates net cruise costs to increase in the range of 4-5% from the prior-year quarter, adjusted earnings per share is still expected within 56-60 cents. The consensus estimate for earnings is pegged at 60 cents for the to-be-reported quarter, mirroring 15.4% year-over-year growth. The improvement is expected to be driven primarily by higher revenues and an increase in net ticket, and on-board and other yields.

Our Model Doesn’t Suggest a Beat

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Carnival has a Zacks Rank #3 and an Earnings ESP of -1.80%, a combination that does not suggest an earnings beat.

Carnival Corporation Price and EPS Surprise

Stocks to Consider

Here are some leisure stocks that according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Live Nation Entertainment (NYSE:LYV) , Norwegian Cruise (NYSE:NCLH) and Cinemark (NYSE:CNK) , each carrying a Zacks Rank #3, have Earnings ESP of +25.58%, +0.36% and +1.88%, respectively.

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