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Dunkin'(DNKN) Up 5.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Dunkin' Brands (DNKN - Free Report) . Shares have added about 5.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Dunkin' Brands Q4 Earnings Top Estimates, Sales Miss

Dunkin’ Brands reported mixed results for the fourth quarter of 2018, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Notably, the reported quarter marked the fifth straight quarter of an earnings beat.

Adjusted earnings of 68 cents per share surpassed the consensus estimate of 62 cents by 9.7%. The bottom line also improved 41.7% on a year-over-year basis, driven by rise in net income and fall in shares outstanding.

Revenues were up 1.5% year over year to $319.6 million but lagged the consensus mark of $330 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 2.8% 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 $152.2 million, which reflect an increase of 2.3% from the prior-year quarter. The upside can be attributed to higher royalty income, driven by systemwide sales growth, offset by a decrease in franchise fees, primarily due to franchisee incentives provided in 2018 as part of investments in Dunkin' U.S. However, Comps remained flat in the quarter under review.

Dunkin’ International division reported revenues of $5.5 million, mirroring an increase of 0.9% from the prior-year quarter. The improvement was primarily backed by rise in royalty income and other revenues, offset by a decrease in franchise fees. Additionally, comps increased 1.1% compared with 1.6% gain in the year-ago quarter.

Baskin-Robbins U.S. revenues declined 9.2% from the prior-year quarter to $9,125 million due to decreases in sales for ice cream and other products as well as a fall in franchise fees and royalty income. Comps fell 3.7% against 5.1% rise in the year-ago quarter.

Baskin-Robbins International division revenues were $24.3 million, marking a year-over-year decrease of 5.1% due to fall in sales for ice cream and other products. However, comp growth was 1.5% compared with rise of 3% in the year-ago quarter.

Operating Performance

Adjusted operating income rose 6.9% from the year-ago quarter to $102.2 million, mainly owing to an increase in royalty income and rental margin. Decrease in general and administrative expenses also had a positive impact. Adjusted operating income margin expanded 170 basis points to 32%.

Balance Sheet

Dunkin' Brands exited 2018 with cash and cash equivalents of $517.6 million compared with $1 billion at the end of 2017. Restricted cash totaled $79 million, down from $94 million as of Dec 30, 2017. Long-term debt was approximately $3 billion.

2018 Results

In 2018, total revenues increased 3.6% year over year to $1.3 billion. Operating income moved up 5.7% while operating margin expanded 70 bps.  Adjusted earnings were $2.90 per share, marking an increase of 40%.

Dunkin' U.S. comps growth was 0.6% while Baskin-Robbins U.S. comps declined 0.6%. The company added 392 net new restaurants worldwide, including 278 net new Dunkin' locations in the United States.

2019 Guidance

Dunkin’ Brands 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. The company expects to open at the low end of the range of 200-250 net new Dunkin' U.S. units.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

At this time, Dunkin' has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

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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