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We remain Underperform on cruise operator Carnival Corp. (CCL - Analyst Report), given its mixed second-quarter fiscal 2013 results, successive slash in guidance, and lingering European crisis.

Why the Reiteration?

Although Carnival’s second-quarter fiscal 2013 adjusted earnings beat the Zacks Consensus Estimate by 50%, its revenues missed the same. Both earnings per share and revenues slipped year over year. A lower net revenue yield owing to reduced pricing led to the decline in revenues, which when combined with higher cruise costs marred earnings.

Moreover, Carnival is facing one ordeal after another. After the grounding of its ship, Costa Concordia, in Italy in Jan 2012, the engine of its Triumph cruise ship caught fire in Feb 2013, which hurt the company’s fiscal 2013 guidance.  Even though the company is recovering at a slow but steady pace from the Concordia grounding disaster, it continues to be a cause of concern for the company.

Lower bookings, voyage cancellations and higher costs compelled Carnival to trim its fiscal 2013 earnings guidance twice in a span of six months. Earnings for fiscal 2013 are now expected to remain in the range of $1.45—$1.65 versus $1.80—$2.10 per share expected earlier (announced in May 2013).

Prior to this, Carnival reduced its earnings guidance from the range of $2.20−$2.40 to $1.80–$2.10 per share. Consecutive cuts in earnings guidance within a span of six months raised concerns about the near-term outlook of the company.

Last but not least, Carnival’s European operations will prove to be challenging even in fiscal 2013 due to the sovereign debt crisis, which has lowered consumer spending. On the pricing front, EAA (Europe, Australia & Asia) witnessed softer trends even before Costa was grounded.

Apart from pricing, overall occupancy and booking volume are also expected to remain low for European cruises for the rest of 2013. Carnival currently retains a Zacks Rank #5 (strong Sell).

Others Stocks to Consider

Players in the leisure and recreational industry, which look attractive at current levels, include Ambassadors Group Inc. , International Speedway Corp. (ISCA - Snapshot Report) and Norwegian Cruise Line Holdings Ltd. (NCLH - Snapshot Report), all carrying a Zacks Rank #2 (Buy).

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