We expect leading doughnut and coffee chain, Dunkin' Brands Group, Inc.DNKN , to beat expectations when it reports second-quarter 2015 results on Jul 23, before the opening bell.
Last quarter, the company posted a positive earnings surprise of 11.11%, largely due to an increase in revenues. In fact, in the past four quarters the company's has posted an average earnings surprise of 3.31%. Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Dunkin' Brands is likely to beat earnings because it has the right combination of two key components.
Zacks ESP : Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.08%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank : Dunkin' Brands has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Dunkin' Brands' Zacks Rank #2 and +2.08% ESP makes us confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
Dunkin' Brands operates through its Dunkin' Donuts and Baskin-Robbins brands.
Dunkin' Brands' strategic initiatives to boost sales like the introduction of more drive-through locations, menu innovation and breakfast-menu optimization should continue to boost the results in the coming quarter. Meanwhile, the newly launched digital initiatives and global expansion - mainly in the emerging markets - are expected to aid the company's international operations.
Further, Keurig Green Mountain, Inc.'s partnership with Dunkin' Brands and coffee distributor The J. M. Smucker Company to make Dunkin' K-Cup pods available for sale at retail outlets nationwide, as well as online, would aid its top line in the to-be-reported quarter and beyond.
However, like other restaurant chains, Dunkin' Brands' upcoming results are likely to be hurt by the food price inflation. Cost inflation would result in higher expenses, in turn affecting second-quarter margins. Further, intense competition would hurt the company's top line.
Stocks to Consider
Here are some companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Jack in the Box Inc. JACK , with an Earnings ESP of +2.74% and a Zacks Rank #1.
Noodles & Company NDLS , with an Earnings ESP of +8.33% and a Zacks Rank #2.
BJ's Restaurants, Inc. BJRI , with an Earnings ESP of +2.56% and a Zacks Rank #3.