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Sonic (SONC) Earnings Beat Estimates in Q3, Revenues Lag

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Sonic Corp. (SONC - Free Report) reported mixed results for the third quarter of fiscal 2018, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Adjusted earnings of 52 cents outpaced the consensus estimate of 49 cents and also increased 20.9% on a year-over-year basis. The reported figure incorporated benefits of the lower tax rate. Without the impact of the tax reform, the bottom line increased 7%.

Following the quarterly results, the company’s shares declined 8.1% in after-hours trading yesterday. The downturn can be primarily attributed to dismal sales numbers. However, this  Zacks Rank #2 (Buy) stock has gained 32.5% in a year, outperforming the industry’s 0.8% rise. Let us delve deeper into the numbers.

Revenues and Comps

Total revenues of $118.3 million missed the consensus mark of $120 million. The top line also declined 4.6% year over year due to intense competitive pressure.

System comps dipped 0.2% in the quarter, comprising a 0.2% comps decrease at franchise drive-ins and a 0.2% gain at company drive-ins.

Operating Highlights & Net Income

In the reported quarter, total costs and expenses dropped 8.5% year over year to nearly $81 million owing to an overall reduction in the total cost of company drive-in sales. Meanwhile, Sonic’s drive-in margins expanded 10 basis points.

Net income came in at $21.6 million, reflecting a 14.9% year-over-year increase owing to tax benefits.

Sonic Corp. Price, Consensus and EPS Surprise

Balance Sheet

Cash and cash equivalents as of May 31, 2018 were $44.9 million, up from $22.3 million as of Aug 31, 2017. Long-term debt increased to $701.9 million at the end of the fiscal third quarter from $628.1 million as of Aug 31, 2017.

Stockholder’s deficit rose to $273.3 million from $201 million at the end of Aug 31, 2017. Additionally, the company repurchased 1.2 million outstanding shares.

Fiscal 2018 Outlook

For fiscal 2018, Sonic expects adjusted earnings per share to be up 3-6% year over year, excluding the impact of the U.S. tax reform (compared with the prior guided range of 2-7%). Including tax benefits, adjusted EPS is anticipated in the range of $1.45-$1.49 compared with $1.43-$1.50 projected earlier. The Zacks Consensus Estimate for 2018 earnings is pegged at $1.47.

Comps are projected in the band of down 1% to flat year over year, lower than the earlier view of down 1% to up 1% comps. Drive-in-level margins are anticipated within 15.3-15.6%, depending on the degree of comps growth at company drive-ins.

Free cash flow is estimated at $60 million (tweaked from $60-$63 million in the past) for 2018.

Other Stocks to Consider

Some other top-ranked stocks in the same space are Wingstop Inc. (WING - Free Report) , Dine Brands Global, Inc. (DIN - Free Report) and Domino's Pizza, Inc. (DPZ - Free Report) . Wingstop and Dine Brands sport a Zacks Rank #1 (Strong Buy), whereas Domino's Pizza carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wingstop has an impressive long-term earnings growth rate of 19.5%.

Dine Brands Global has reported better-than-expected earnings in the trailing four quarters, with an average beat of 7.8%.

Domino's Pizza has an impressive long-term earnings growth rate of 19.2%.

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