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Will Fogo de Chao (FOGO) Disappoint Investors in Q3 Earnings?

Fogo de Chao, Inc. FOGO is set to report third-quarter 2017 results on Nov 7, after market close. In fact, this will mark the leading Brazilian steakhouse’s 10th quarterly earnings release since it began trading on Nasdaq in June 2015.

Last quarter, the company’s earnings missed the Zacks Consensus Estimate. However, its trailing four-quarter average earnings surprise is a positive 0.42%.

Notably, the recent Harvey and Irma hurricanes are likely to impact the performance of restaurant companies in the third quarter. Shares of a number of restaurants including Fogo de Chao plummeted after the storms hit the United States. In the past three months, the company’s shares have lost 20.8%, comparing unfavorably with the industry’s gain of 3.3%.



 

Moreover, as is the case for most restaurants in the United States, Fogo de Chao is plagued by the soft sales environment of the broader industry. Consumer spending has been a pressing problem so far in 2017, putting overall restaurant profits under pressure.

Moreover, a challenging sales environment in Brazil due to sustained economic recession had resulted in comps decline in the company-owned Brazil restaurants in the prior quarter. Comps are expected to decline further in the to-be-reported quarter. In fact, for Brazil, the consensus estimate is pegged at a comps decline of 7% in the third quarter as compared to a 9% increase in the year-ago quarter.

Notably, for the third quarter, the consensus estimate for company-owned comps is likely to decline nearly 0.8% as against a 0.6% increase in the prior-year quarter.

Meanwhile, the second quarter marked an increase in the company’s overall costs related to specialized trainings for the various initiatives taken by the company to drive traffic. Though the company somewhat expects such expenses to normalize during the third quarter, cost issues are likely to affect the company’s bottom line.

The consensus estimate for third-quarter earnings is pegged at 11 cents reflecting a 30% decline from the prior year. Moreover, earnings estimate for the current quarter and year have moved down 35.3% and 12.2%, respectively, over the last 60 days reflecting analyst’s pessimism over the stock’s prospects.

Also, per our predictive quantitative model, Fogo does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: Fogo de Chao has an Earnings ESP of -12.95%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently has a Zacks Rank #5 (Strong Sell). As it is we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Fogo de Chao, Inc. Price and EPS Surprise

 

 

However, the company is focusing on various initiatives that will boost traffic and drive revenues. In the third quarter, the company initiated a menu roll out which is expected to reflect in the company’s to-be-reported quarter results. In fact, the consensus estimate for revenues is pegged at $71.39 million, reflecting 3.4% year-over-year growth.

Stocks to Consider

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

Noodles & Company NDLS has an Earnings ESP of +66.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DineEquity, Inc DIN has an Earnings ESP of +5.14% and a Zacks Rank #3.

The Wendy's Company WEN has an Earnings ESP of +3.71% and a Zacks Rank #3.

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