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Fogo de Chao, Inc. (FOGO - Free Report) got hit by the hurricanes in its US business as the restaurant industry continues to struggle. This Zacks Rank #5 (Strong Sell) is expected to see declining earnings in 2017.

Fogo de Chao is a Brazilian steakhouse, or churrascaria, which specializes in fire-roasting meats using centuries-old Southern Brazilian cooking techniques.

It opened its first restaurant in Brazil in 1979 and now operates 36 restaurants in the United States, 9 in Brazil, two join venture restaurants in Mexico and one joint venture in Jeddah, Saudi Arabia. It offers a tasting menu of a variety of meats including beef, lamb, pork and chicken along with a Market Table that has seasonal salads, soups, fresh vegetables and desserts.

Disappoints on Preliminary Third Quarter Results

On Oct 17, Fogo de Chao reported preliminary third quarter results which disappointed investors.

Comparable restaurant sales, the key metric for restaurant chains, fell 5.1% with US company-owned comparable restaurant sales falling 2.1%.

The company was impacted by the US hurricanes, Harvey and Irma, but even excluding the impact of the hurricanes, US comparable restaurant sales were still down 1.4% in the quarter.

It was even worse at the company-owned comparable restaurants in Brazil which fell 17.1%, although that was coming off the year-over-year comparisons from the Rio de Janeiro Olympic Games. Excluding the two Rio locations, comparable restaurant sales were up 3%.

Guided Below Consensus

Fogo de Chao also guided below the Zacks Consensus for the quarter, giving a range of $0.08 to $0.10, including hurricane impacts of about $0.03.

The Zacks Consensus had been at $0.17 and has now been slashed to $0.11.

“Though we anticipated traffic pressures as a result of lapping last year’s Olympic Games in Brazil, we also continued to feel the impact of industry softness in the U.S.," said Larry Johnson, Chief Executive Officer of Fogo de Chao.

"Our third quarter results were further impacted by short-term challenges, including three hurricanes; a spike in beef inflation due to retail demand pressures; and security issues in Rio de Janeiro, as a result of increased crime the government is currently addressing."

"More specifically, as a result of the hurricane activity, we lost 19 operating days during the quarter and experienced a decline in sales and traffic that extended before landfall through the post-hurricane clean up periods."

Estimates for 2017 and 2018 Cut

The analysts didn't waste any time in cutting full year 2017 estimates as well as 2018 estimates reflecting the mood that the restaurant industry is struggling right now despite the strong US economy.

4 analysts cut for 2017 which pushed the Zacks Consensus down to $0.79 from $0.90 in the last 30 days. That's an earnings decline of 8.7%.

They also cut for 2018 which lowered the 2018 Zacks Consensus Estimate to $0.90 from $0.99.

Shares Down Big in 2017

Shares were already weak even before the preliminary numbers for the third quarter were released but they continue to fall, hitting a nearly 2-year low, down 24% year-to-date.



It looks pretty cheap at these levels, however. Fogo is now trading with a forward P/E of just 13.9.

The company will report earnings on November 7 so it will have more details about its business outlook.

If you're interested in investing in the restaurant chains, you might want to consider the king of the restaurants, Domino's (DPZ - Free Report) . It had positive comparable restaurant sales again last quarter, both domestically and internationally, and is expected to grow earnings by 35% in 2017.

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