Digesting the Latest Fast Food Earnings Announcements

by Louis Navellier | February 6, 2013 8:15 pm

A few weeks ago, Wendy’s (NYSE:WEN[1]) reported surprisingly strong earnings for the fourth quarter and the stock, which had been long-derided by the analyst community, took off. Now that we’ve had three more big fast food chains announce quarterly results this week, let’s see if the industry as whole is at a turning point or if Wendy’s was an isolated incident.

Chipotle

Shares of Chipotle (NYSE:CMG[2]) gapped up after the burrito chain announced robust comparable-restaurant sales growth in the fourth quarter. During the quarter the company also opened 60 new restaurants, boosting its restaurant count to 1,410. Total sales, including new locations, advanced 17.2% year-over-year to $699.16 million while profit climbed 7% to $61.35 million, or $1.95 per share. Adjusted earnings weighed in at $1.95 per share, which just missed the $1.96 consensus estimate. All around, this was a solid earnings announcement

But before you buy into the Chipotle hype, consider this. Looking ahead to next year, Chipotle expects comparable restaurant sales to climb in the low single digits…at best. The company expects to open 165 to 180 new restaurants and while that will eventually boost sales, there are some significant upfront costs to consider, on top of rising food prices. This is why I have CMG, a moderately-ranked stock, down as a hold[3].

Panera

Panera (NASDAQ:PNRA[4]) also benefitted from healthy bakery-café sales in the fourth quarter. Compared with the same quarter last year, total revenues (including bakery-café sales, franchise royalties and product sales) grew 15% to $571.5 million; this missed the $574.8 million consensus estimate by a hair. Over the same period net income jumped 34% to $51.6 million, or $1.75 per share. Because analysts forecast earnings of $1.74 per share, Panera posted a modest earnings surprise.

Looking ahead to 2013, the company expects earnings growth in the range of 17% to 18%. Unfortunately, this is below the Street estimate of 19.7% earnings growth, and also represents a slowdown from the 27% growth seen in 2012. This, coupled with lackluster buying pressure and a mediocre track record of beating analyst estimates, has convinced me to keep this Conservative stock at a hold[5].

Yum! (Taco Bell, KFC)

Yum! Brands (NYSE:YUM[6]) reported fourth-quarter earnings earlier this week, but investors still haven’t quite recovered from the mixed news. Last quarter, the company was hit with a U.S. pension settlement charge so profit fell 5% year-over-year to $337 million. Adjusted earnings weighed in at 83 cents per share, which topped the 82 cents per share  consensus estimate. Meanwhile, total revenue inched up 1% to $4.15 billion, also topping analyst estimates of $4.12 billion.

And now for the bad news: China. The company’s KFC chain has been facing negative publicity over allegations that one of its suppliers was feeding toxic chemicals to its chickens to accelerate growth. Because KFC is considered a premium fast food chain in China, its customers have taken these claims very seriously and sales have been hit in a big way. So in 2013, the company forecasts a mid-single digit earnings decline. Continuing the trend, YUM is a hold as well[7].

Coming Up: Burger King

Burger King  (NYSE:BKW[8]) is due to report earnings at the end of the month. Because this company has less than four quarters’ worth of earnings data, we don’t have enough information on Burger King to get a proper reading in Portfolio Grader. But considering how much its competitors have struggled in this challenging environment, I can only imagine that we’ll want to hold off on adding BKW as well.

In addition to fast food companies, a group of companies tied to the leisure and entertainment industry have just announced earnings—with some surprising results. I’ll have the full scoop in tomorrow’s blog.

Endnotes:
  1. WEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=WEN
  2. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  3. down as a hold: http://navelliergrowth.investorplace.com/portfolio-grader/stock-report.html?t=CMG
  4. PNRA: http://studio-5.financialcontent.com/investplace/quote?Symbol=PNRA
  5. at a hold: http://navelliergrowth.investorplace.com/portfolio-grader/stock-report.html?q=PNRA&submit=submit&type=site
  6. YUM: http://studio-5.financialcontent.com/investplace/quote?Symbol=YUM
  7. YUM is a hold as well: http://navelliergrowth.investorplace.com/portfolio-grader/stock-report.html?q=YUM&submit=submit&type=site
  8. BKW: http://studio-5.financialcontent.com/investplace/quote?Symbol=BKW

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