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One Industry Seen Reaping Benefits of Cheap Commodities

Althea Chang
Big Data Download

Casual dining chains outperformed the S&P 500 in the first quarter, and those restaurants could see even more of an upside for the balance of the year thanks to cost-cutting, according to one analyst.

But cost cuts are attributed to more than just increased efficiency. Relatively cheap commodities should help improve profit margins in the next few quarters, Miller Tabak Senior Restaurant Analyst Stephen Anderson told "Big Data Download."

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Lower wheat prices directly affect companies like Panera Bread (PNRA), but the price of corn and wheat used for livestock feed influence dairy and meat prices and ultimately improve margins at less carb-focused restaurants as well, Anderson explained. An individual restaurant company's performance can depend on its menu items, he said.

Companies like Buffalo Wild Wings (BWLD), which buys fresh chicken wings on the spot market, could benefit the fastest from lower wheat and corn costs, Anderson said. He expects wing prices to drop from about $2 per pound in February to $1.58 per pound later this year. Chipotle Mexican Grill (CMG), which also purchases its antibiotic-free chicken on the spot marketl, and Bob Evans (BOBE), a major pork producer, could see the benefits of cheaper corn and wheat fairly quickly as well.

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Meanwhile burger chains like Ruby Tuesday (RT) may not benefit from cheaper corn and wheat at all, Anderson said. Following last year’s drought, beef supplies in Texas and the southwestern United States are still tight. In fact, beef prices could actually rise this year, Anderson said.

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