3 Burning Questions Carnival Stock Will Answer This Week

This should be a quieter week than usual on the earnings front. It's just that time of the quarter. However, one company with a fiscal year ending in November is Carnival Corp. (NYSE: CCL). The country's largest cruise line -- by revenue and passenger volume, but not by market cap -- reports its fiscal second-quarter results on Tuesday morning.

There is a lot going on with the wave-riding bellwether. An impressive winning streak, a critical guidance update, and a potential shift in market leadership to monitor are at stake as Carnival pulls into port. Let's take a look at some of the questions that investors will want answered this week.

Image source: Getty Images.

1. Can the bottom-line beats keep coming?

The cruising market has staged one of the most remarkable recoveries in the history of travel. An industry that was essentially shut down for more than a year following the COVID-19 crisis has more than recovered. Cruise lines are generating more in trailing revenue and earnings than they ever have right now.

Turning to the bottom line, analysts are still trying to catch up to the recovery. Carnival's stock has a pretty jaw-dropping winning streak when it comes to landing ahead of analyst profit targets. Just size up how Carnival has fared in its last 11 quarterly earnings reports.

Data source: Yahoo! Finance. EPS = earnings per share (adjusted).

Topping expectations by at least 9% for almost three years should grab your attention. Expectations are low this time around, as rising fuel prices weigh on margins. Wall Street's modeling a profit of $0.34 a share in net income for the fiscal quarter that ended in May, down from the $0.35 a share it posted a year earlier. Can Carnival stretch that string of beats to an even dozen? The market will find out on Tuesday morning.

2. Can guidance continue to impress?

The last few years have been strong. Demand for Carnival sailings has been resilient. However, something problematic happened the last time that one of the country's leading ocean cruise line operators stepped up with fresh financials.

Norwegian Cruise Line (NYSE: NCLH) stumbled. Last month's financial update for the third-largest player in the market, which Carnival leads, began to take on water. Norwegian delivered mixed results for its fiscal first quarter. It was an earnings beat, but it did fall short on the top line.

Guidance was the real dagger. With fuel costs rising and the war in Iran heightening at the time, softening demand in a climate of spiking operating costs was a one-two punch. Norwegian would go on to dramatically hose down its full-year adjusted earnings guidance despite the quarterly beat. It also warned that net yields -- a widely watched metric for the cruising industry that measures net revenue per available passenger cruise day after backing out select variable items -- would be negative. The industry's net yields were positive before.

Carnival's report will matter. Guidance will be even more important. If Carnival can keep its outlook for net yields positive (in more ways than one), it will pass this critical test that sank one of its competitors in May.

CCL data by YCharts

3. Can Carnival retain its newfound market leadership?

I mentioned earlier that Carnival was not the largest among its peers by market capitalization. It may be the top dog in terms of revenue, fleet size, and passenger volume, but Royal Caribbean (NYSE: RCL) is the one wearing the market cap and enterprise value crowns.

Royal Caribbean has historically grown faster than Carnival and Norwegian. It has also commanded healthier profit margins, outperforming its rivals in returning to profitability and reinstating its dividend after the pandemic. Carnival is now also very profitable and has resumed its quarterly payouts.

Royal Caribbean has also historically outperformed the larger Carnival and the smaller Norwegian in terms of stock performance, but check out the chart above. Carnival's 30% jump over the past year is more than double Royal Caribbean's return. A strong report by Carnival on Tuesday morning -- and the subsequent earnings call that will kick off a half hour into the trading day -- can keep it on top.

Rick Munarriz has positions in Royal Caribbean Cruises. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.