We recently downgraded our rating on Miami-based Carnival Corp. (CCL - Analyst Report) from Neutral to Underperform.
The stock was lowered mainly due to a decline in bookings after the recent sinking of its ship, Costa Concordia, and the consequent trimming in earnings guidance. Shooting fuel prices were also responsible for the downgrade.
We are a bit doubtful about the cruising sector’s performance over the near term after Costa Concordia ran aground in mid-January on Italy’s west coast. The disaster hit the industry in the wake of the wave season between January and March. The recent tragedy resulted in subdued bookings. On a fleet-wide basis, excluding Costa, constant dollar revenue yield guidance was slashed from the earlier guidance by approximately 1.5% for 2012. Coming to Costa cruises, bookings plunged significantly, post grounding.
For North American brands also, booking volumes were not impressive on a year-over-year basis. Among all their ternaries, European programs were the poorest performers. According to management, this weakness resulted from an economic slowdown in Europe, concerns regarding the strength of the European banks as well as higher airfares between North America and Europe. This entire catastrophe made Carnival cut its non-GAAP earnings range for full-fiscal 2012 to $1.40 to $1.70 per share, from its previous outlook of $2.55 to $2.85.
Fuel costs for the upcoming second quarter are expected to increase $85 million year over year, charging an incremental 11 cents per share. Higher fuel prices, net of currency, are expected to slash earnings by 40 cents in 2012.
Agreement – Estimate Revisions
Based on the above fundamentals, 7 out of 10 analysts’ estimates moved southward over the last 30 days for the upcoming quarter while only one estimate walked the opposite path. For fiscal 2012, all 13 out of 16 analysts slashed their estimates while none moved north.
Magnitude – Consensus Estimate Trend
Over the last 30 days, we noticed a drastic decline in estimates, which fell 13 cents for the upcoming quarter and 46 cents for fiscal 2012. The current Zacks Consensus Estimates for the second quarter and fiscal 2012 are pegged at 7 cents and $1.59, respectively.
Carnival which competes with Royal Caribbean Cruises Ltd. (RCL - Analyst Report) currently retains a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating.