Miami, Florida-based Carnival Corporation & plc (CCL) reduced its fiscal 2011 earnings outlook to $2.50 to $2.60 from $2.90 to $3.10 precipitated by higher fuel prices and route changes resulting from disturbances in the Middle East and North Africa. The guidance has been lowered by 40 cents due to rising fuel prices and an additional 5 cents for direction changes in the Middle East and North Africa.

This was quiet disappointing; as a result, the share price fell 46 cents to $39.99 during the trading session and closed at $39.94 on Friday. The Zacks Consensus Estimate for 2011 is pegged at $2.92.

Since the company provided its guidance in December, there has been an upward rally in crude oil prices due to the political unrest in Libya, Egypt, Tunisia, Yemen and Bahrain. Oil prices are rising at double-digit rates and hike in fuel prices is a cause of concern for all cruise vacation providers and shipping companies.

Moreover, Carnival does not hedge its exposure to rising fuel costs, and more than half of its revenues comes from passengers outside the U.S. As a result, the company’s result will be more negatively impacted by fluctuation in fuel expenses and currency exchange rates.

However, one of Carnival Corporation’s primary competitors, Royal Caribbean Cruises Ltd. (RCL), has a strategy to hedge fuel prices which helps protect against the spike in fuel costs. The company is 58% hedged for 2011, 55% hedged for 2012 and 30% hedged for 2013.

Carnival, the world’s biggest cruise-line operator, said that its first quarter 2011 earnings will be 19 cents, above the Zacks Consensus Estimate by a penny and at the higher end of the company’s forecast of 15 cents to 19 cents. In the first quarter of 2010, adjusted earnings were 12 cents and including the impact of a non-recurring item of 10 cents, reported earnings were 22 cents. The company will announce its first quarter results on March 22, 2011.

We have a Zacks #3 Rank (short-term Hold recommendation) on the stock. We also reiterate our long-term Neutral rating.

 
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