Can Carnival Earnings Keep Its Rivals at Bay?

Carnival (CCL -1.32%) will release its quarterly report on Tuesday, and despite huge challenges for the cruise-ship operator lately, investors have watched the stock bounce from its lows earlier in the summer. Yet with Royal Caribbean (RCL 1.91%) and Norwegian Cruise Line (NCLH -1.73%) seeking to take advantage of some of their rival's recent woes, Carnival earnings will need to deliver something special to keep investors confident about the company's future.

Carnival has been the victim of multiple incidents in its cruise fleet, including the fatal Costa Concordia tragedy off the Italian coast last year and the loss of power onboard its Carnival Triumph earlier this year. With incidents like these turning potential travelers off to the cruise experience generally, Carnival has had to fight to keep its customers even as Norwegian and Royal Caribbean have tried to argue that their experiences are better. Let's take an early look at what's been happening with Carnival over the past quarter and what we're likely to see in its report.

Stats on Carnival

Source: Yahoo! Finance.

Will Carnival earnings float higher this quarter?
Analysts have ratcheted down their views on Carnival earnings in recent months, cutting their August-quarter projections by a dime per share and making smaller cuts to their full-year views this year and next. The stock, though, has rebounded from its worst levels of the year, climbing 10% since mid-June.

About half of Carnival's gain came in the wake of its May-quarter earnings report. Even though the company had to offer sizable promotional discounts in order to drive ticket sales, Carnival was able to report positive net income on a GAAP basis because of falling prices for fuel. Investors also seemed to applaud the company's decision to name Arnold Donald as CEO, leaving former CEO Micky Arison holding the sole role of chairman of Carnival's board.

The moves Carnival has had to make to win back customers have been extensive. Earlier this month, the company offered money-back guarantees of a 110% refund and free flights home if customers are dissatisfied with their cruise vacation. Carnival offered a special incentive to travel agents, offering free cruises for them and up to three friends. Such moves show just how important Carnival sees the travel-agent community as helping them sell trips.

Still, mishaps around the industry hurt all of its players. Royal Caribbean had to cancel several of its planned Alaska cruises, as it chose not to risk the possibility of a repeat of the Carnival Triumph incident given concerns about a mechanical problem aboard its Celebrity Millennium ship. Moreover, crime has become an important consideration aboard cruise ships, as Carnival, Royal Caribbean, and Norwegian have had almost 250 serious criminal allegations over the past three years. Disney's (DIS -0.38%), which has had 15 such allegations, has also felt the pinch from wary customers.

In the Carnival earnings report, watch to see how well the company has done at booking cabins for its coming winter season. If early results look problematic, then it could be another tough year for Carnival and its peers.

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