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Can Darden (DRI) Maintain the Earnings Momentum in Q4?

Darden Restaurants, Inc.DRI is scheduled to report fourth-quarter and fiscal 2016 financial numbers on Jun 30, before the opening bell.

Last quarter, Darden had posted a 0.83% positive earnings surprise. In fact, the company's earnings surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 15.69%. Let's see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

Darden's earnings have surpassed the Zacks Consensus Estimate over the past six quarters. Positive comps growth and costs-saving initiatives are driving bottom-line growth and are expected to boost fourth-quarter results as well.

For fiscal 2016, the company expects earnings per share in the range of $3.48 to $3.52 on the back of an expected increase in comps growth. Notably, comps growth is anticipated in the 3-3.5% range.

Meanwhile, sales initiatives like simplifying kitchen systems, developing new core menu items and technology-driven moves coupled should continue to drive the top line in the to-be-reported quarter. Moreover, the company's Olive Garden Brand Renaissance plan - aimed to turn around its Olive Garden business - has started reaping benefits and we expect the improvement to continue in the fourth quarter.

However, increased labor costs is likely to dampen profits, while a soft consumer spending environment might somewhat keep comps under pressure.

Earnings Whispers

Our proven model does not conclusively show that Darden is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP : Darden has an earnings ESP of -2.78%. This is because the Most Accurate estimate stands at $1.05 per share while the Zacks Consensus Estimate is pegged at $1.08.

Zacks Rank : Darden has a Zacks Rank #2 which increases the predictive power of ESP. However, the company's negative ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Dave & Buster's Entertainment, Inc. PLAY has an earnings ESP of +2.22% and a Zacks Rank #1.

Papa John's International Inc. PZZA has an earnings ESP of +3.70% and a Zacks Rank #2.

Brinker International, Inc. EAT has an earnings ESP of +0.81% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

DARDEN RESTRNT (DRI): Free Stock Analysis Report

PAPA JOHNS INTL (PZZA): Free Stock Analysis Report

DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report

BRINKER INTL (EAT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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