We expect Missouri-based restaurant chain Panera Bread Company (PNRA) to beat expectations when it reports fourth-quarter 2014 results on Feb 11, 2015. Last quarter, it posted a negative surprise of 2.82%. Let’s see what is in store for the company this season.
Why a Likely Positive Surprise?
Our proven model shows that Panera is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.55%. This is meaningful and a leading indicator of a likely positive earnings surprise.
Zacks Rank: Panera Bread has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Panera’s Zacks Rank #3 and +0.55% ESP makes us confident of an earnings beat.
What’s Driving the Better-than-Expected Earnings?
Following sluggish comps in the first half of 2014, comps improved at Panera Bread in the third quarter of the year. We believe this was mainly because of the Panera 2.0 program rolled out in Mar 2014 to increase sales and earnings, while reducing waiting time and speeding up service during peak hours.
We expect the company to post improved comps in the fourth quarter as well backed by its extensive menu innovation and digital initiatives associated with the Panera 2.0 program. In fact, Panera’s initiatives to drop all artificial additives from its menu and use antibiotic-free chicken in all its items are expected to continue to help drive consumer traffic in the upcoming quarters.
However, the incremental investments in digital initiatives and menu innovations will continue to be a drag on earnings. Despite the long-term benefits associated with the program, the company will incur additional expenses in the to-be-reported quarter.
Additionally, commodity costs are expected to increase with the rise in prices of butter, dairy and meat due to diseases and widespread drought. This is a concern for the company as it operates in an intensely competitive segment and this might dent its profits. The company currently expects fourth quarter 2014 earnings per share in the range of $1.77 to $1.87. The Zacks Consensus Estimate is currently pegged at $1.82 per share.
Stocks to Consider
Panera is not the only firm looking up this earnings season. We also anticipate earnings beat from three other companies in the restaurant industry:
El Pollo Loco Holdings, Inc. (LOCO) has an Earnings ESP of +8.33% and a Zacks Rank #2 (Buy).
Noodles & Company (NDLS) has an Earnings ESP of +7.14% and a Zacks Rank #2.
Texas Roadhouse, Inc. (TXRH) has an Earnings ESP of +3.85% and a Zacks Rank #2.
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