A leading pizza delivery company, Papa John's International Inc. (PZZA) is set to report third-quarter 2014 results on Nov 4, 2014. In the last quarter, the company posted a negative earnings surprise of 2.44%. Let’s see how things are shaping up for the upcoming announcement.
Factors to Consider This Quarter
After posting in-line earnings for two consecutive quarters, Papa John's missed the Zacks Consensus Estimate in the second quarter of 2014 owing to rising cost of cheese and additional commissary costs. Price of cheese – one of the major ingredients of the company – is continuously rising owing to drought conditions in the U.S. We believe that rising cheese costs will likely hurt profits in the third quarter as well.
Moreover, the company is investing in labor and other resources related to the rollout of its new in-store operating system, which would be beneficial for the company over the long term. However, the costs incurred to execute this initiative would dent margins in the near term.
Meanwhile, Papa John's has been consistently delivering positive comps domestically as well as in the international markets over the past few quarters. The company’s brand revitalization initiatives such as unit expansion and international expansion have contributed significantly to its comps growth.
Also, the company is investing in technology-driven initiatives like digital ordering in order to capitalize on the digital wave that has hit the U.S. fast casual restaurant sector. Moreover, limited time offerings and menu innovation continue to play an important part in generating revenues. We expect to see the positive impact of these initiatives in the third quarter results.
Earnings Whispers?
Our proven model does not conclusively show that Papa John's is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 37 cents. Hence, the difference is 0.00%.
Zacks Rank #3 (Hold): Papa John's’ Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult. Note that the Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Stocks to Consider
Other stocks in the restaurants industry that have both a positive earnings ESP and a favorable Zacks Rank are:
Einstein Noah Restaurant Group, Inc. (BAGL) with Earnings ESP of +4.55% and a Zacks Rank #3.
Burger King Worldwide, Inc. (BKW) with Earnings ESP of +3.70% and a Zacks Rank #2 (Buy).
Red Robin Gourmet Burgers Inc. (RRGB) with Earnings ESP of +3.03% and a Zacks Rank #3.
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