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Why Is Dunkin'(DNKN) Up 0.8% Since Last Earnings Report?

Zacks Equity Research
Walmart (WMT) closed the most recent trading day at $114.74, moving -0.21% from the previous trading session.

It has been about a month since the last earnings report for Dunkin' Brands (DNKN). Shares have added about 0.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Dunkin'due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Dunkin' Brands Q1 Earnings & Revenues Beat Estimates

Dunkin' Brands reported better-than-expected results for the first quarter of 2019. Notably, the reported quarter marked the sixth straight quarter of an earnings beat.

Adjusted earnings of 67 cents per share surpassed the consensus estimate of 62 cents by 8.1%. The bottom line also improved 8.1% on a year-over-year basis, driven by rise in net income and fall in shares outstanding.

Revenues were up 5.9% year over year to $319.1 million and surpassed the consensus mark of $313 million. The top line improved, primarily owing to rise in royalty income from system-wide sales growth, and an increase in advertising fees and related income.

The company’s global system-wide sales rose 4.1% from the prior-year quarter. System-wide sales were favored by global store development.

Segmental Performance

Dunkin' Brands operates through Dunkin’ and Baskin-Robbins brands.
Dunkin' U.S. reported revenues of $149.7 million, which reflect an increase of 7% from the prior-year quarter. This upside can be attributed to higher royalty income, driven by system-wide sales growth and increase in rental income, offset by a decrease in franchise fees Comps also increased 2.4% in the first quarter of 2019, owing to an increase in average ticket, which was partially offset by a decrease in traffic.

Dunkin’ International division reported revenues of $6.9 million, mirroring an increase of 27.7% from the prior-year quarter. The improvement was primarily backed by rise in royalty income and franchise fees. Additionally, comps increased 2.9% compared with 2.1% gain in the year-ago quarter.
Baskin-Robbins U.S. revenues declined 2.2% from the prior-year quarter to $10.3 million due to decreases in royalty income, driven by a system-wide sales decline, as well as a decrease in other revenues, offset by an increase in rental income.  Comps fell 2.8% compared with1% fall recorded in the year-ago quarter.

Baskin-Robbins International division revenues were $25.6 million, marking a year-over-year decrease of 1.2% due to a decline in sales of ice cream and other products, offset by increases in royalty income, franchise fees and rental income. Also, comp decline was 2% against rise of 10% in the year-ago quarter.

Operating Performance

Adjusted operating income rose 11.1% from the year-ago quarter to $106.3 million, mainly owing to increase in royalty income, and a reduction in general and administrative expenses due primarily to a decrease in personnel costs. Adjusted operating income margin expanded 150 basis points to 33.3%.

Balance Sheet

Dunkin' Brands exited the first quarter of 2019 with cash and cash equivalents of $458.7 million compared with $517.6 million at the end of 2018. Restricted cash totaled $79.6 million, up from $79 million as of Dec 29, 2018. Long-term debt was approximately $3 billion.

2019 Guidance

Dunkin’ Brands still expects adjusted earnings of $2.94-$2.99 per share. The Zacks Consensus Estimate for earnings in 2019 is pegged at $2.98, well above the mid-point of the company’s guided range. Moreover, operating and adjusted operating income growth is anticipated in a mid to high-single digit.

The company expects low to mid-single-digit revenue growth, with Dunkin’ U.S. and Baskin-Robbins U.S’ comps improving in a low-single digit. It expects to open at the low end of 200-250 net new Dunkin' U.S. units.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Dunkin' has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Dunkin'has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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