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Darden (DRI) to Report Q1 Earnings: What's in the Cards?

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Darden Restaurants, Inc. (DRI - Free Report)   is scheduled to report first-quarter fiscal 2018 financial numbers on Sep 26, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 2.61%. In fact, Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 3.54%.

Let’s see how things are shaping up for this announcement.

Darden Restaurants, Inc. Price and EPS Surprise

Factors at Play

Positive comps growth and costs-saving initiatives are driving Darden’s bottom line and are expected to boost the fiscal first-quarter results as well. Notably, the company’s earnings have surpassed the Zacks Consensus Estimate over the last 11 consecutive quarters.

Meanwhile, management has been focusing on improving core operating fundamentals with initiatives like simplifying kitchen systems, better in-restaurant execution to enhance guest experience, menu innovation, remodeling along with various technology-driven moves. In fact, most of Darden’s brands have been witnessing growth over the past few quarters backed by these initiatives. Thus, we expect the trend to continue in the to-be-reported quarter as well.

However, increased labor costs and a non-franchised business model may dent the company’s profits, while a soft consumer spending environment in the U.S. restaurant space might restrict revenue growth.

Notably, Darden completed its acquisition of small restaurant chain, Cheddar's Scratch Kitchen on Apr 24. Now, it remains to be seen how the acquisition would impact the company’s performance in the fiscal first quarter as this would be the first full-quarterly result that includes Cheddar’s operations.

Earnings Whispers

Our proven model does not conclusively show earnings beat for Darden this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Darden has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 98 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Darden currently holds a Zacks Rank #2. However, the company’s 0.00% ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against stocks with Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks to Consider

Here are some restaurant companies that investors may consider, as our model shows that they have the right combination of elements to post earnings beat this quarter:

Del Taco Restaurants, Inc. (TACO - Free Report) has an Earnings ESP of +7.69% and a Zacks Rank #2.

McDonald’s Corporation (MCD - Free Report) has an Earnings ESP of +3.77% and a Zacks Rank #3.

YUM! Brands, Inc. (YUM - Free Report) has an Earnings ESP of +3.59% and a Zacks Rank #3.

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