Restaurant Stock Q3 Earnings on Nov 1: PZZA, DIN, WING, TXRH

Zacks Equity Research Published on October 31, 2016

The Q3 earnings season is now in full swing with releases from 291 S&P 500 members (as of Oct 28), per the latest Earnings Preview.

Notably, the widely popular restaurant industry has been grabbing much of the spotlight of late. However, the performance of the restaurant stocks has been far from impressive so far.

Among the restaurant behemoths that have already reported their numbers, McDonald’s Corporation (MCD - Free Report) and Domino’s Pizza Inc. (DPZ - Free Report) posted robust results beating earnings and revenue estimates.

Though Yum! Brands, Inc.’s (YUM - Free Report) earnings were in line with the Zacks Consensus Estimate, revenues failed to surpass the same. Dunkin’ Brands Group also missed top-line expectations.

Two other key players, BJ’s Restaurants, Inc. (BJRI - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) , posted disappointing results wherein both earnings and sales missed estimates.

We thus note that a soft consumer spending environment in the U.S. restaurant space, which is leading to lower traffic and comps, is turning out to be a major headwind for the top line.

A number of restaurateurs are set to report their quarterly numbers on Nov 1. Let’s take a look at what might be in store for these companies:

World’s third-largest pizza delivery company Papa John’s International, Inc. (PZZA - Free Report) recorded a positive earnings surprise of 12.96% last quarter. In fact, the company posted positive earnings surprises in each of the past four quarters, with an average beat of 7.81%.

Notably, our proven model shows that an earnings beat is uncertain for Papa John’s in the third quarter. This is because, according to our quantitative model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase its odds of an earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

For the quarter, the company has an earnings ESP of 0.00% and a Zacks Rank #2 (Buy), making it difficult to conclusively predict a beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, the Zacks Consensus Estimate for the quarter’s earnings is pegged at 50 cents. Papa John's has been delivering positive comps in both the domestic and international markets since the beginning of 2014 on the back of various sales building initiatives. We expect this trend to continue in the Q3 as well. However, negative currency translation and higher costs might hamper the quarter’s profitability (read more: Is a Surprise in Store for Papa John's in Q3 Earnings?).

DineEquity, Inc.’s (DIN - Free Report) earnings were in line with the Zacks Consensus Estimate last quarter. Meanwhile, the trailing four-quarter average earnings surprise stands at a positive 3.35%.

We expect the company to beat expectations in third-quarter fiscal 2016 due to the combination of its Zacks Rank #3 and earnings ESP of +2.16%. The Zacks Consensus Estimate for the quarter’s bottom line is pegged at $1.39.

Comps at the International House of Pancakes (IHOP) brand are expected to be positive, in line with what has been the trend for the past 13 consecutive quarters. Also, steps taken to revitalize the Applebee's Neighborhood Grill & Bar brand are expected to somewhat improve comps (read more: DineEquity: A Beat in the Cards this Earnings Season?).

Wingstop, Inc. (WING - Free Report) posted a 7.14% positive earnings surprise in the last reported quarter. In fact, the company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 15.46%.

For third-quarter 2016, the company has an earnings ESP of 0.00%, which makes surprise prediction difficult even though the company has a Zacks Rank #2 (Buy). Notably, the Zacks Consensus Estimate for the quarter’s earnings is pegged at 12 cents. This will be the company’s sixth quarterly results after its IPO in Jun 2015.

Wingstop has been reporting positive comps for over 12 years on the back of menu innovation and solid unit development. We expect the trend to continue in the to-be-reported quarter as well. However, higher costs and a choppy sales environment in the overall restaurant space might hamper the quarter’s results (read more: Wingstop to Release Q3 Earnings: A Hit or Miss?).

Based in Louisville, KY, Texas Roadhouse, Inc. (TXRH - Free Report) registered a 6.82% positive earnings surprise in the previous quarter. Moreover, the company surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 2.22%.

We note that Texas Roadhouse is unlikely to post a beat in third-quarter 2016 due to the combination of its Zacks Rank #4 (Sell) and earnings ESP of 0.00%. The Zacks Consensus Estimate for the quarter’s bottom line is pegged at 37 cents.

Stay tuned! Check back on our full write-up on earnings releases of these stocks.

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