Can Darden (DRI) Surprise This Earnings Season? - Analyst Blog

Florida-based restaurateur, Darden Restaurants, Inc. DRI is set to report its fiscal third-quarter 2014 results on March 21, before the opening bell.

In the last quarter, it posted a negative earnings surprise of 25.00%, primarily affected by increase in total costs and expenses. Will Darden be able to post a turnaround? Let's see how things are shaping up for this announcement.

Factors to Influence Fiscal Third Quarter Results

Darden has been reeling under pressure for quite some time now due to weak performance of two of its core brands — Red Lobster and Olive Garden. Although the company has undertaken a set of initiatives such as value-proposition and promotional offers to boost the brands, these are yet to pay off. As a result, the company plans to separate its Red Lobster business in the near future either through a sale or spin-off.

The company projected earnings of 82 cents for fiscal third quarter 2014 – down 19.6% year over year – in its preliminary results reported on Mar 3, 2014. The downside reflects lower sales and higher direct costs due to inclement weather. Moreover, Darden's bottom-line will also be hurt by the costs associated with its strategic action plan announced in Dec 2013.

The company expects comps at all its chains such as Red Lobster, Olive Garden, LongHorn Steakhouse and The Specialty Restaurant Group to be sluggish in the quarter due to the severe winter in the U.S. and a Thanksgiving calendar shift.

With such a bleak near-term outlook, this restaurateur failed to impress analysts. In fact, the concern over the dwindling popularity of its main brands forced many analysts to significantly lower their third-quarter earnings estimates. The Zacks Consensus Estimate for the fiscal third quarter declined 13% to 82 cents per share over the last 30 days, as almost all brokers covering the stock pulled down their estimates.

Earnings Whisper?

Our proven model does not conclusively show that Darden is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Darden is 0.00%.  This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 82 cents.

Zacks Rank: Darden's Zacks Rank #3 (Hold) however increases the predictive power of ESP. That said we also need to have a positive ESP to be confident of an earnings surprise.  

Other Stocks to Consider

Here are some other companies you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

McDonald's Corp. MCD has an earnings ESP of +0.81% and carries a Zacks Rank #3.

Fiesta Restaurant Group, Inc. FRGI has an earnings ESP of +3.33% and carries a Zacks Rank #3.

Las Vegas Sands Corp. LVS has an earnings ESP of +1.12% and carries a Zacks Rank #3.