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Why Is Papa John's (PZZA) Up 8.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Papa John's (PZZA - Free Report) . Shares have added about 8.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Papa John's 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.

Papa John's Q2 Earnings & Revenues Surpass Estimates

Papa John’s reported better-than-expected second-quarter 2019 results. Its adjusted earnings of 28 cents per share surpassed the Zacks Consensus Estimate of 22 cents by 27.3%. However, the bottom line fell 41.7% from the year-ago quarter figure due to weak operating results.

Revenues totaled $399.6 million, which outpaced the Zacks Consensus Estimate of $398 million. However, the top line declined 7.1% 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 second quarter, global restaurant sales moved down 3.8%, comparing favorably with the first quarter's decline of 5.5% but unfavorably with the year-ago quarter’s fall of 2.3%. Excluding foreign currency impact, global restaurant sales edged down 2.6% compared with the previous quarter’s decline of 3.7%. In the year-ago quarter, the metric gained 2.3%.

Domestic company-owned restaurant comps were down 6.8% in the reported quarter compared with a 7.2% decline in the year-ago quarter.

At North America franchised restaurants, comps fell 5.3% compared with a decline of 5.7% in the second quarter of 2018. Also, comps at system-wide North America restaurants moved down 5.7% compared with 6.1% decline recorded in the year-ago quarter.

Comps at system-wide international restaurants were up 0.3% against a decline of 0.8% in the prior-year quarter.

Operating Highlights

Total operating income was $14.2 million in the second quarter compared with operating income of $24.9 million in the year-ago quarter. Total costs and expenses amounted to $385.6 million, down 4.3% from second-quarter 2018.

Balance Sheet

As of Jun 30, 2019, cash and cash equivalents totaled $30.7 million compared with $33.3 million as of Dec 30, 2018. Long-term debt was $349.7 million at the end of the second quarter of 2019 compared with $601.1 million at the end of 2018.

Inventories at the end of the reported quarter declined to $26.6 million from $27.2 million at the end of Dec 30, 2018. Free cash flow at the end of the second quarter of 2019 summed $8.9 million compared with $51.9 million at the end of 2018.

The company paid out cash dividends of $10.5 million in the second quarter of 2019 and declared second-quarter cash dividend of approximately $10.5 million.

2019 Guidance

Papa John's still expects adjusted earnings per share (EPS) of $1.00-$1.20, whereas the company reported $1.34 in 2018. While North America comps are expected to decline 1-4%, International comps are anticipated to be flat to up 3%. Capital expenditure of $45-$50 million is still expected for 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 5.88% due to these changes.

VGM Scores

Currently, Papa John's has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. 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

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Papa John's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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