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Miami-based world’s biggest cruise line operator, Carnival Corporation (CCL - Analyst Report), is slated to release its fourth quarter 2012 earnings results on December 20, before the opening bell. Carnival expects adjusted earnings per share in the range of 7 cents–11 cents. The Zacks Consensus Estimate for the fourth quarter is pegged at 13 cents, reflecting a 52% decline year over year but above the guidance range.

For fiscal 2012, Carnival has revised its adjusted earnings upwards in the range of $1.83–$1.87 per share from the earlier range of $1.80–$1.90. The Zacks Consensus Estimate for fiscal 2012 is pegged at $1.87, reflecting a 22.6% decline year over year and is at the higher end of the guidance range.

Carnival has outperformed the Zacks Consensus Estimate in three out of the last four quarters with a trailing four quarter average earnings surprise of 118.3%.

Third Quarter Recap

Carnival’s third quarter 2012 adjusted earnings of $1.53 per share surpassed the Zacks Consensus Estimate of $1.46. On a GAAP basis, the company reported earnings of $1.71 per share which improved from the year-ago quarter earnings of $1.69.

The earnings were driven by higher revenue yields and lower costs partially offset by unfavorable currency impact. The adjusted earnings excluded net unrealized loss on fuel derivatives of $136 million.

Total revenue decreased 7.4% from the prior-year quarter to $4,684.0 million, but surpassed the Zacks Consensus Estimate of $4,651.0 million.

Agreement of Analysts

Revision trends in the last 30 days are skewed slightly toward the positive side for the fourth quarter, with one out of 11 earnings estimates being raised and none being lowered. In the last seven days, none of the earnings estimates were revised, thus providing a maintained outlook.

For fiscal 2012, one out of 11 earnings estimates was raised and none lowered in the last 30 days. In the last seven days, one out of 15 earnings estimates was raised and none lowered indicating a maintained outlook.

Magnitude of Estimate Revisions

Over the past 30 days, Carnival’s earnings estimate for full fiscal 2012 has remained static at $1.87. However, for the fourth quarter, the estimate has increased by a penny to 13 cents.

Our Take

We expect Carnival’s fourth quarter results to benefit from a surge in demand in North American brands. Carnival is recovering at a steady pace from the Costa disaster and we expect the Costa cruises to swing back to profitability next year. Moreover, the company is also experiencing increase in on-board revenue yields as well as booking volume. Its cost containment efforts are also paying off.

However, the sluggish European economy that led to an uncertain consumer confidence in Europe and higher overall unit costs pose major threats to the company in 2013. The adverse currency translations and surging fuel prices are another cause of concern. Considering these, Carnival expects fourth quarter earnings to be down by 8 cents per share.

Carnival, which competes with Royal Caribbean Cruises Ltd. (RCL - Analyst Report), currently retains a Zacks #3 Rank (short-term Hold rating). We reiterate our long-term Neutral recommendation on the stock.

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