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Why Is Papa John's (PZZA) Down 5.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Papa John's (PZZA - Free Report) . Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Papa John's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Papa John's Q1 Earnings & Revenues Beat Estimates

Papa John’s reported better-than-expected first-quarter 2019 results. Adjusted earnings of 31 cents per share surpassed the Zacks Consensus Estimate of 21 cents by 47.6%. However, the bottom line fell 40.4% from the year-ago quarter figure due to weak operating results.

Revenues totaled $398.4 million, which outpaced the Zacks Consensus Estimate of $374 million. However, the top line declined 11.5% on a year-over-year basis. This downside can be attributed to dismal domestic company-owned restaurant sales, a decline in North America commissary sales on weak volume and soft international sales.

Global Restaurant Sales & Comps

In the first quarter, global restaurant sales decreased 5.5%, comparing favorably with the fourth quarter's decline of 13% but unfavorably with the year-ago quarter’s fall of 1.3%. Excluding foreign currency impact, global restaurant sales declined 3.7% compared with the previous quarter’s decrease of 11.7%. In the year-ago quarter, the metric declined 1%.

Domestic company-owned restaurant comps were down 9% in the reported quarter compared with a 6.1% comps decline in the year-ago quarter.

At North America franchised restaurants, comps fell 6.1% compared with a comps decline of 5% in the first quarter of 2018. Also, comps at system-wide North America restaurants decreased 6.9% compared with 5.3% decline in the year-ago quarter.

Comps at system-wide international restaurants were down 0.1% against comps growth of 0.3% in the prior-year quarter.

Operating Highlights

Total operating income was $5.5 million in the first quarter compared with operating income of $28.1 million in the year-ago quarter. Total costs and expenses amounted to $392.9 million, down 6.9% from first-quarter 2018.

Balance Sheet

As of Mar 31, 2019, cash and cash equivalents totaled $29.3 million compared with $33.3 million as of Dec 30, 2018. Long-term debt was $601.1 million at the end of the fourth quarter of 2018 compared with $446.6 million at the end of 2017.

Inventories at the end of the reported quarter increased to $30 million from $20 million at the end of Dec 30, 2018. Free cash flow in the first quarter of 2019 summed $3.1 million compared with $27.4 million at the end of 2018.

The company paid cash dividends of $9.1 million in the first quarter of 2019 and declared the second quarter cash dividend of approximately $10.6 million.

2019 Guidance Reaffirmed

Papa John's issued an outlook for 2019 in the fourth quarter of 2018. The company stated that it reaffirms previous guidance.

Management expects adjusted earnings per share (EPS) of $1.00-$1.20 compared with $1.34 reported in 2018. While North America comps are expected to decline 1-5%, International comps are anticipated to be flat to up 3%. Capital expenditure of $45-$50 million is expected during 2019.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Papa John's has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Papa John's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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