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World’s second largest cruise company, Royal Caribbean Cruises Ltd. (RCL - Analyst Report), is set to report third-quarter 2013 results on Oct 24. In the last quarter, it delivered a 130.00% positive surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider

Royal Caribbean anticipates higher costs in the third quarter owing to its marketing activities and culinary improvement program, thus, pressurizing its bottom line. Further, the company is changing its deployment toward Asia, Australia and the Caribbean to reduce its capacity in geo-political risk-inflicted Mediterranean and debt-ridden European zones. The benefits of this initiative will not be realized before 2014, thus negatively impacting profitability at the current level.

The Grandeur fire accident in May 27, 2013 will continue to impact on the company’s results in the ensuing quarter.

In addition to these, the China-Japan conflict continues to affect the company’s itineraries as well as demand. Apart from this, increased austerity measures, faltering consumer sentiment in Europe and the Concordia disaster in Italy continue to be overhangs.

Royal Caribbean witnessed downward movement of estimates in the past 30 days for the upcoming quarter as well as full year 2013. The Zacks Consensus Estimate for the upcoming quarter declined 0.6% to $1.63 over the last 30 days.

Earnings Whispers?

Our proven model does not conclusively show that Royal Caribbean is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: The Expected Surprise Prediction or ESP for the company is -4.29% since the Most Accurate Estimate stands at $1.56 per share, while the Zacks Consensus Estimate is higher at $1.63.

Zacks Rank #3 (Hold): Royal Caribbean’s Zacks Rank #3 when combined with a negative ESP makes positive surprise prediction difficult. We caution against stocks with Zacks Rank #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

Other stocks from the consumer discretionary sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Carmike Cinemas Inc. (CKEC - Snapshot Report) with Earnings ESP of + 4.35% and Zacks Rank #1 (Strong Buy).

Wynn Resorts Ltd (WYNN - Analyst Report), with Earnings ESP of + 8.81% and Zacks Rank #2 (Buy).

Cinemark Holdings Inc. (CNK - Snapshot Report) with Earnings ESP of + 5.46% and Zacks Rank #3 (Hold).

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