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Restaurant Brands (QSR) Q2 Earnings: What's in the Cards?

Restaurant Brands International Inc. QSR is scheduled to report second-quarter 2017 numbers on Aug 2, before the opening bell.

Last quarter, Restaurant Brands delivered a positive earnings surprise of 2.86%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last eight quarters, with the trailing four-quarter average earnings surprise coming in at 7.41%.

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

Factors Likely to Affect Q2 Results

The company acquired Popeyes Louisiana Kitchen on Mar 27 for $1.8 billion. This is likely to lead to accelerated global unit development and consequently propel the top line. It should also aid in cutting costs, hence proving accretive to the quarter’s earnings.

Meanwhile, various sales-boosting initiatives undertaken like menu innovation, improved restaurant operations, re-imaging and promotional offerings at Tim Hortons and Burger King are expected to drive comps growth at both the brands. Moreover, Restaurant Brands’ efforts to grow global restaurant footprint at both its iconic brands should further boost the quarter’s performance.

Also, we are encouraged by the company’s augmented focus on enhancing guest experience and increasing franchisee profitability to create value for all of its stakeholders.

However, higher labor costs along with costs related to various sales boosting initiatives are likely to hurt margins. Negative currency translation may further dent the quarter’s profitability given the company’s considerable international presence. Meanwhile, a soft consumer spending environment in the U.S. restaurant space might continue to limit revenue growth and hurt comps.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Restaurant Brands 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. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Restaurant Brands has an Earnings ESP of -2.22%. This is because the Most Accurate estimate is 44 cents, while the Zacks Consensus Estimate is pegged higher at 45 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Restaurant Brands currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

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

Stocks to Consider

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

Whole Foods Market, Inc. WFM has an Earnings ESP of +4.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Yum! Brands, Inc. YUM has an Earnings ESP of +1.64% and a Zacks Rank #3.

The Priceline Group Inc. PCLN has an Earnings ESP of +2.31% and a Zacks Rank #3.

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