Restaurant Stock Q1 Earnings Due on May 1: EAT, PZZA & More
We are in the thick of the Q1 earnings season with 267 S&P 500 members having already released their quarterly numbers and multiple reports scheduled for release this week. More than 900 companies, including 142 S&P 500 members, will report earnings this week.
Per the latest Earnings Preview, 76.8% surpassed earnings estimates while 73.8% beat revenue estimates and 61.4% outpaced both the counts. Further, total earnings of these companies increased 25.1% from the same period last year on 10% higher revenues.
The report projects an 22.6% year-over-year rise in total earnings for S&P 500 companies, with revenues likely to increase 8.4%. This compares favorably with the year-over-year earnings growth of 13.4% but unfavorably with 8.6% year-over-year revenue growth in the last report.
Here’s What the Restaurant Space is Cooking Up
After surviving the seven-quarter spell of comps decline, the U.S. restaurant industry was pleasantly surprised in the fourth quarter of 2017. According to TDn2K’s The Restaurant Industry Snapshot, fourth-quarter comps were up 0.4%, comparing favorably with the third-quarter’s comps decline of 1%. March shone bright on the industry as it recorded the highest sales growth since October 2017, with comps growing 0.8%. Comps in the first quarter, however, ticked up only 0.1% year over year. Nonetheless, the industry has posted two successive quarters of positive comps, which reflect slow yet steady growth.
Moreover, the restaurant industry saw sales growth in the last four of the past six months. This indicates that the soft performance during the first two months was primarily due to external factors like bad weather.
The turnaround for most restaurants, starting November 2017, was backed by a rise in consumer demand and discretionary spending. This is evident from the fact that guest check growth has been accelerating in recent quarters. Average of guest check growth in the first two quarters of 2017 was 2.1%, while that of the last two quarters was 2.3%. Moreover, in the first quarter of 2018, average guest check rose year over year to 2.8%.
Moreover, most of the restaurants are adopting aggressive sales-building strategies to drive demand. The fourth quarter bore the fruits of these efforts. We believe that the first quarter might have also witnessed an overall improvement in restaurant sales given the operational efficiencies of restaurant bigwigs.
However, the Zacks Retail – Restaurants industry has gained 6.7% in the past year, underperforming the S&P 500’s gain of 11.8%.
Q1 Earnings Expectations Encourage
Notably, majority of the Zacks broad sectors (14 out of 16) are expected to be in the positive territory in the first quarter of 2018. Restaurants in the wider Retail wholesale sector seem to have a solid footing as well. The latest earnings outlook calls for a 17.8% rise in the sector’s earnings compared with 3% growth in the last reported quarter. Revenues in the first quarter are expected to rise 7.8% (a little lower than 9.7% in the fourth quarter of 2017). Margins in the quarter are anticipated to increase 0.4%, comparing favorably with the prior quarter’s decline of 0.3%.
Restaurant Stocks to Report Earnings on May 1
Yum China Holdings, Inc. YUMC is a licensee of Yum! Brands YUM, primarily in mainland China. The company has rights to KFC, China's quick-service restaurant concept, Pizza Hut, casual dining restaurant brand and Taco Bell. Over the past year, the company has gained 21.6%, outperforming the industry.
The Zacks Consensus Estimate for the company’s first-quarter 2018 earnings is pegged at 45 cents, reflecting a year-over-year increase of 2.3%. Also, analysts polled by Zacks expect revenues of $1.37 billion, suggesting an increase of 6.3% from the year-ago quarter.
Yum China carries a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, a combination that does not indicate a beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Another pizza giant, Papa John's International, Inc. PZZA is likely to witness year-over-year decline in both the top and the bottom line. The company has been grappling with declining comparable sales in domestic market for quite some time. In the third and fourth quarter of 2017, domestic company-owned restaurant comps declined 1.4% and 4.7%, respectively. Further, comps for North America franchised restaurants fell 3.5% in the last reported quarter, comparing unfavorably with comps growth of 3.4% in the fourth quarter of 2016. Comps at system-wide North American restaurants were down 3.9%, comparing unfavorably with 3.8% growth in the year-ago quarter. The company’s shares have also lost 20.8% in the past year. (Read More: Factors Setting the Tone for Papa John's Q1 Earnings).
The question lingering in investors’ minds now is whether Papa John’s International will be able to deliver a beat in the first quarter of 2018. The consensus estimate for the first quarter is pegged at 62 cents, lower than 74 cents in the year-ago quarter. In the past 30 days, the company’s earnings have witnessed downward revisions, reflecting analysts’ concern surrounding the stock. Meanwhile, analysts polled by Zacks expect revenues of nearly $442 million, down 1.6% from the prior-year quarter.
The company carries a Zacks Rank #4 and an Earnings ESP of 0.00%, a combination that does not indicate a beat.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meanwhile, Brinker International, Inc. EAT has a Zacks Rank #3 (Hold) and an Earnings ESP of +0.69%, indicating a beat in the third quarter of fiscal 2018. Brinker is expected to witness year-over-year earnings growth. The consensus estimate for earnings is pegged at $1.03, indicating 9.6% growth over the year-ago quarter. Revenues however are projected to decline 0.9% from a year ago. Notably, shares of the company have gained 1.3% in a year’s time.
Another leading restaurant operator, Denny's Corporation DENN is scheduled to report first-quarter numbers after market close.
The consensus estimate for first-quarter revenues is pegged at $155.7 million, reflecting 21.7% year-over-year growth. Moreover, the consensus estimate calls for earnings of 13 cents, suggesting 8.3% year-over-year growth.
Denny’s carries a Zacks Rank #4 and an Earnings ESP of 0.00%, a combination that dims the possibilities of a beat. However, the company has rallied 35.2% in the past year.
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Yum! Brands, Inc. (YUM) : Free Stock Analysis Report
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