Papa John's (PZZA) to Report Q4 Earnings: What to Expect?

Papa John's International Inc. PZZA is set to report fourth quarter 2015 and full-year results next week. Last quarter, the company had posted in-line results. It managed to beat the Zacks Consensus Estimate in two of the trailing four quarters, with an average positive earnings surprise of 1.42%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Papa John's has been delivering positive comps in both the domestic and international markets since the beginning of 2014. The company’s brand revitalization initiatives such as unit expansion, menu innovation and international expansion have contributed significantly to its comps growth.

Meanwhile, 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. These initiatives are expected to positively impact results in the soon-to-be-reported quarter. On the other hand, costs incurred to execute these initiatives are likely to dent profits in the quarter.

Also, like other restaurants, rising cost of food, especially that of beef, remains a material headwind for the company. Additionally, with many of Papa John’s restaurants located in international markets, the company remains highly vulnerable to fluctuations in exchange rates. Hence, unfavorable foreign exchange translation may hurt sales and profits in the international markets in the to-be-reported quarter. In fact, during the third-quarter earnings conference, management had provided a bearish outlook for 2015 results.

Papa John’s expects 2015 earnings to be near the low end of the previous projection of $2.04–$2.10 per share.

Comps at system-wide North American restaurants are expected to increase in the range of 3% to 5%, while system-wide international restaurants are expected to post comps growth in the range of 6% to 8%.

Earnings Whispers

Our proven model does not conclusively show that Papa John’s is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But 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 57 cents. Hence, the company’s Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%.
 
Zacks Rank #3 (Hold): Although Papa John’s Zacks Rank #3 increases the predictive power of ESP, we need a positive ESP to be confident about an earnings beat this quarter.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies in the restaurant industry which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Marriott International, Inc. MAR, with an Earnings ESP of +1.11% and a Zacks Rank #3.

MGM Resorts International MGM, with an Earnings ESP of +57.14% and a Zacks Rank #3  

Vista Outdoor Inc. VSTO, with an Earnings ESP of +1.67% and a Zacks Rank #2

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PAPA JOHNS INTL (PZZA): Free Stock Analysis Report
 
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