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Why Is Papa John's (PZZA) Up 1% Since Its Last Earnings Report?
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It has been about a month since the last earnings report for Papa John's International, Inc. (PZZA - Free Report) . Shares have added about 1% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is PZZA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Papa John's Q4 Earnings Miss, Revenues Beat Estimates
Papa John’s International, Inc. posted mixed fourth-quarter 2017 results, wherein earnings missed the Zacks Consensus Estimate while revenues beat the same.
Adjusted earnings of 65 cents per share missed the consensus estimate of 68 cents by 4.4%. The bottom line also fell 6% from the year-ago quarter due to weak operating results.
Revenues of $467.6 million surpassed the consensus estimate of $461.9 million by 1.2% and increased 6.4% year over year. The upside was driven by higher International sales owing to 2.6% growth in comps and higher North America commissary sales on increased commodity prices. Foreign currency also favorably impacted the quarter’s revenues.
However, when adjusted for one extra week in 2017, revenues for the fourth quarter decreased 0.7%, primarily on lower company-owned restaurant sales. A challenging sales environment in the U.S. restaurant space has been affecting the company for quite some time and reflected in the top-line results. Also, labor costs coupled with increased operating costs from digital initiatives and marketing expenses have put substantial pressure on the company’s bottom line, which is expected to linger in 2018, as reflected in the company’s 2018 outlook.
Global Restaurant Sales & Comps
Global restaurant sales growth of 9.9% in the fourth quarter was higher than the last quarter’s rise of 4.4% and the year-ago quarter’s growth of 5.3%. Excluding foreign currency impact, global restaurant sales growth was 9.6%, higher than the prior quarter and the year-ago quarter’s growth of 5% and 7%, respectively.
Domestic company-owned restaurant comps were down 4.7% in fourth-quarter 2017, compared with comps growth of 4.8% in the year-ago quarter.
Comps for North America franchised restaurants fell 3.5%, comparing unfavorably with comps growth of 3.4% in the fourth quarter of 2016. Comps at system-wide North American restaurants were down 3.9%, comparing unfavorably with 3.8% comps growth in the year-ago quarter.
Comps at system-wide international restaurants increased 2.6%, lower than comps growth of 5.6% a year ago and 5.3% in the preceding quarter.
Operating Highlights
Total operating margin was 7.8% in the quarter, a decrease of 390 basis points (bps) from the year-ago quarter. Total costs and expenses amounted $429.3 million in the quarter, up 7.8% from the prior-year quarter.
Net income declined 12.6% year over year to $28.5 million.
Balance Sheet
As of Dec 31, 2017, cash and cash equivalents totaled $22.3 million, compared with $15.6 million as of Dec 25, 2016. Long-term debt was $446.6 million at the end of 2017 compared with $299.8 million at the end of 2016.
Inventories at the end of 2017 increased to $30.6 million from $25.1 million in the year-ago period. Cash flow totaled $82.4 million as of Dec 31, 2017, compared with $94.7 million as of Dec 25, 2016.
In 2017, the company repurchased 2,960 shares at a cost of $209.6 million. Management declared fourth-quarter dividend of 225 cents per common share which was paid on February 23, 2018 to shareholders of record at the close of business on February 12, 2018.
2018 Guidance
Management expects GAAP EPS in the range of $2.40 to $2.60. Adjusted earnings are expected to decline in the range of 4.5% to 12% year-over-year, due to lower operating results, primarily from expected pressure on Domestic restaurants’ sales, higher delivery and insurance costs for the company-owned restaurants, and higher costs for technology and marketing investments.
North America comps are expected in the range of negative 3% to flat. International comps are anticipated to grow in the band of 3% to 5%.
Capital expenditures of $45-$55 million are expected in 2018, whereas Total Debt/EBITDA is expected between 3x to 3.5x.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 17.1% due to these changes.
Papa John's International, Inc. Price and Consensus
At this time, PZZA has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise PZZA has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Why Is Papa John's (PZZA) Up 1% Since Its Last Earnings Report?
It has been about a month since the last earnings report for Papa John's International, Inc. (PZZA - Free Report) . Shares have added about 1% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is PZZA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Papa John's Q4 Earnings Miss, Revenues Beat Estimates
Papa John’s International, Inc. posted mixed fourth-quarter 2017 results, wherein earnings missed the Zacks Consensus Estimate while revenues beat the same.
Adjusted earnings of 65 cents per share missed the consensus estimate of 68 cents by 4.4%. The bottom line also fell 6% from the year-ago quarter due to weak operating results.
Revenues of $467.6 million surpassed the consensus estimate of $461.9 million by 1.2% and increased 6.4% year over year. The upside was driven by higher International sales owing to 2.6% growth in comps and higher North America commissary sales on increased commodity prices. Foreign currency also favorably impacted the quarter’s revenues.
However, when adjusted for one extra week in 2017, revenues for the fourth quarter decreased 0.7%, primarily on lower company-owned restaurant sales. A challenging sales environment in the U.S. restaurant space has been affecting the company for quite some time and reflected in the top-line results. Also, labor costs coupled with increased operating costs from digital initiatives and marketing expenses have put substantial pressure on the company’s bottom line, which is expected to linger in 2018, as reflected in the company’s 2018 outlook.
Global Restaurant Sales & Comps
Global restaurant sales growth of 9.9% in the fourth quarter was higher than the last quarter’s rise of 4.4% and the year-ago quarter’s growth of 5.3%. Excluding foreign currency impact, global restaurant sales growth was 9.6%, higher than the prior quarter and the year-ago quarter’s growth of 5% and 7%, respectively.
Domestic company-owned restaurant comps were down 4.7% in fourth-quarter 2017, compared with comps growth of 4.8% in the year-ago quarter.
Comps for North America franchised restaurants fell 3.5%, comparing unfavorably with comps growth of 3.4% in the fourth quarter of 2016. Comps at system-wide North American restaurants were down 3.9%, comparing unfavorably with 3.8% comps growth in the year-ago quarter.
Comps at system-wide international restaurants increased 2.6%, lower than comps growth of 5.6% a year ago and 5.3% in the preceding quarter.
Operating Highlights
Total operating margin was 7.8% in the quarter, a decrease of 390 basis points (bps) from the year-ago quarter. Total costs and expenses amounted $429.3 million in the quarter, up 7.8% from the prior-year quarter.
Net income declined 12.6% year over year to $28.5 million.
Balance Sheet
As of Dec 31, 2017, cash and cash equivalents totaled $22.3 million, compared with $15.6 million as of Dec 25, 2016. Long-term debt was $446.6 million at the end of 2017 compared with $299.8 million at the end of 2016.
Inventories at the end of 2017 increased to $30.6 million from $25.1 million in the year-ago period. Cash flow totaled $82.4 million as of Dec 31, 2017, compared with $94.7 million as of Dec 25, 2016.
In 2017, the company repurchased 2,960 shares at a cost of $209.6 million. Management declared fourth-quarter dividend of 225 cents per common share which was paid on February 23, 2018 to shareholders of record at the close of business on February 12, 2018.
2018 Guidance
Management expects GAAP EPS in the range of $2.40 to $2.60. Adjusted earnings are expected to decline in the range of 4.5% to 12% year-over-year, due to lower operating results, primarily from expected pressure on Domestic restaurants’ sales, higher delivery and insurance costs for the company-owned restaurants, and higher costs for technology and marketing investments.
North America comps are expected in the range of negative 3% to flat. International comps are anticipated to grow in the band of 3% to 5%.
Capital expenditures of $45-$55 million are expected in 2018, whereas Total Debt/EBITDA is expected between 3x to 3.5x.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 17.1% due to these changes.
Papa John's International, Inc. Price and Consensus
Papa John's International, Inc. Price and Consensus | Papa John's International, Inc. Quote
VGM Scores
At this time, PZZA has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise PZZA has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.