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Restaurant Brands (QSR) Q1 Earnings: Stock to Surprise?

Restaurant Brands International Inc. QSR is set to report first-quarter 2016 results on Apr 28, before the market opens. This will mark the sixth quarterly release by the quick service restaurant company since it began trading in Dec 2014.

Headquartered in Miami, FL, Restaurant Brands came into existence with the merger of Tim Hortons Inc. and Burger King Worldwide Inc. It is now the parent company of these two iconic quick service restaurant brands that have been serving customers for more than 50 years.

Last quarter, the company posted a positive earnings surprise of 6.45%, bringing the average positive surprise for the trailing four quarters to 8.71%.

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

Factors to Consider

Comps at both the brands – Tim Horton's and Burger King – have shown considerable year-over-year improvement over the past three quarters backed by menu innovation, value meals, re-imaging and premium offerings. These initiatives should continue to aid results in the to-be reported quarter as well.

We are also encouraged by Restaurant Brands’ aggressive expansion efforts to gradually develop the Tim Hortons brand in Columbus and Cincinnati over the past decade. Further, Burger King’s aggressive international expansion in Europe, Middle East and Asia is likely to boost first-quarter revenues. The company is also focusing on enhancing guest experience and increasing franchisee profitability to increase value for investors.

However, costs associated with sales initiatives are taking a toll on the company’s profits. Also, costs incurred to establish the brands in new markets are keeping profits under pressure. Like other food and restaurant companies, rising food costs pose a major challenge for Restaurant Brands. Further, the company’s substantial foreign exposure could keep earnings under pressure in the to-be-reported quarter due to significant foreign exchange headwinds.

Earnings Whispers

Our proven model does not conclusively show that Restaurant Brands 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. That is not the case here as you will see below.

Zacks ESP: Restaurant Brands’ Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 20 cents. 

Zacks Rank: Restaurant Brands’ Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement.

Stocks to Consider

Here are some companies in the restaurant sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Bojangles', Inc. BOJA, with an Earnings ESP of +5.88% and a Zacks Rank #3.

Domino's Pizza, Inc. DPZ, with an Earnings ESP of +2.06% and a Zacks Rank #2.

Red Robin Gourmet Burgers Inc. RRGB, with an Earnings ESP of +0.91% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
DOMINOS PIZZA (DPZ): Free Stock Analysis Report
 
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
 
RESTAURANT BRND (QSR): Free Stock Analysis Report
 
BOJANGLES INC (BOJA): Free Stock Analysis Report
 
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