Third-quarter earnings season will be potluck for the restaurant industry.
Despite recent progress in the economy, profits for some 20 dining chains are forecast to be up only 6%, on average, in the quarter, according to consensus estimate calculations by independent research firm Puglisi. S&P 500 earnings, by contrast, are expected to jump 14% over the same period.
Analysts cite a slew of factors -- including a still-weak economy, the late summer blackout in the Northeast and Hurricane Isabel -- that made the latest quarter a relatively difficult one.
"The third quarter was tough," said John Glass, an analyst at CIBC World Markets.Several chains guided below analyst expectations this summer, including Brinker International (EAT - Get Report), Lone Star Steakhouse (STAR) and Rare Hospitality (RARE), according to Thomson First Call. More recent, pizza chain Papa John's (PZZA) lowered its 2003 outlook Tuesday, and said it might close underperforming restaurants. Among companies that have already reported, Yum! (YUM - Get Report) -- which operates Taco Bell, Pizza Hut and KFC, among other chains -- said earnings were up 12% in the third quarter. But underlying results were poor. Yum! had flat sales, as well as higher occupancy and commodity costs. KFC continued to be a drag on the quarter, and the company said it does not expect a significant turnaround there until summer 2004. Elsewhere, Darden Restaurants (DRI) posted lower first-quarter earnings in September, due to higher crab costs at its Red Lobster chain. And the company said it would not meet analyst projections for the second quarter. Nevertheless, there are expected to be some sweet spots for the eatery group this reporting period.