The Zacks Analyst Blog Highlights: Walt Disney, California Pizza Kitchen, Chipotle Mexican Grill, McDonald's and Wendy’s/Arby’s Group

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May 11, 2011, 09:30 ET

CHICAGO, May 11, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Walt Disney Co. (NYSE: DIS), California Pizza Kitchen, Inc. (Nasdaq: CPKI), Chipotle Mexican Grill, Inc. (NYSE: CMG), McDonald's Corp. (NYSE: MCD) and Wendy's/Arby's Group Inc. (NYSE: WEN).

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Here are highlights from Tuesday's Analyst Blog:

Disney Misses on Both Sides

Walt Disney Co. (NYSE: DIS) reported fiscal 2nd quarter earnings after the bell today. The entertainment behemoth posted a horror flick on earnings -- a negative surprise of 14.3% -- and a serious drama on the revenue side.

Disney's 49 cents per share in the quarter was well below the Zacks Consensus Estimate of 57 cents. The company made $9.08 billion in revenue, down a bit from the expected $9.13 billion. Disney's Q2 earnings made a penny more than the year-ago quarter, and revenues are up 5.9% from $8.58 billion a year ago.

Studios and Parks & Resorts is where the main concerns were coming into the earnings report, and they proved to be where the quarterly weakness existed. The Japanese earthquake and tsunami helped the Parks group fall 7% in the quarter, and the box office flop "Mars Needs Moms" assisted a disappointing quarter for Disney's film studios, which were down 13%.

Analysts had been modestly optimistic ahead of the earnings report after the bell for the fiscal 2nd quarter. Three of 21 estimates had been upwardly revised in the past month. Looking to fiscal years 2011 and 2012, analysts have far more optimistic -- fiscal 2011 EPS of $2.64 expected is up 20 cents over the past 90 days, and fiscal 2012 has seen 5 upward revisions in the past month.

Looking ahead, several questions remain for Disney: Will the Japanese situation have a lingering negative effect on Parks & Resorts in the company's 3rd quarter? Will high oil prices keep consumers away from the parks this spring/summer? How much of a negative effect on Disney-owned ESPN would an NFL lock-out this fall have?

Finally, the Studios are planning a big blockbuster year for summer movies. But will "Thor," "Cars 2" and "Pirates of the Caribbean 4" stage a comeback for the Studios next quarter, or will one or more of these films also bring in weaker-than-expected box office receipts?

This is the second earnings miss in the past three quarters for Disney. Shares of DIS stock, which had been up nearly 2% at the closing bell, are down 2.8% in after-hours trading.

California Pizza Kitchen Beats

California Pizza Kitchen, Inc. (Nasdaq: CPKI) recently posted first quarter 2011 earnings of 9 cents per share, which was above the Zacks Consensus Estimate of 6 cents per share and the company's guided range of 3 cents to 5 cents per share. However, reported earnings missed the prior-year quarter earnings by a penny.

The better-than-expected results were driven by menu optimization program, which focus on higher margin menu items and cost control.

Inside the Headlines Numbers

The pizza restaurant chain reported total revenue of $156.0 million, down 0.5% year over year and below the Zacks Consensus Estimate of $158.0 million.

Comparable store sales fell 2.1% in the reported quarter, as inclement weather conditions adversely impacted same-restaurant sales growth.

In order to revive its top-line growth and improve its comparable store sales, California Pizza Kitchen plans to introduce new menu offerings and create brand awareness. Moreover, the company continues to focus on cost savings in order to drive margin.

Restaurant sales inched down 0.6% to $153.5 million. However, royalties from the licensing agreement rose 0.8% to $1.1 million, international franchise revenues climbed 9.7% to $0.6 million and domestic franchise revenues leaped 13.1% to $0.8 million.

The restaurant operating margin contracted 80 basis points (bps) to 16.1%, due to a 50-bp rise in food, beverage and paper supplies cost, a 30-bp spike in labor cost and a 10-bp upside in direct operating and occupancy expense.

Financial Position

The company ended the quarter with cash and cash equivalents of $17.1 million and shareholders' equity of $197.2 million. As of April 3, 2011, California Pizza Kitchen has no debt on its balance sheet.

The company is also focused on optimizing shareholder value by increasing its free cash flow and returning the same to shareholders in the form of dividend or share repurchase.

Store Update

During the quarter, California Pizza Kitchen opened one company-owned full-service domestic restaurant. California Pizza Kitchen also opened two franchised international restaurants in Mexico and India.

Management expects to open two international full-service franchised restaurants in second quarter 2011.

Outlook

The casual dining operator expects second quarter 2011 earnings in the range of 20 cents per share to 21 cents per share, in line with the current Zacks Consensus Estimate. Comparable store sales are forecasted between 0% and positive 1.0% for second quarter 2011.

Our Take

The company posted negative comps during the reported quarter, but expects the trend to improve slightly in the next quarter. However, estimates remained unchanged in the last 60 days for 2011 and 2012, implying that the analysts do not see any meaningful catalyst for the time being. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 71 cents per share and 85 cents per share, respectively.

One of California Pizza Kitchen's primary competitors, Chipotle Mexican Grill, Inc. (NYSE: CMG) reported first quarter 2011 earnings of $1.46, which surpassed the Zacks Consensus Estimate of $1.43 on the back of strong top-line growth buoyed by higher traffic count and new restaurant openings.

Growing Comps for McDonald's

McDonald's Corp. (NYSE: MCD) posted global comparable sales growth of 6.0% in April, on the heels of strong beverage sales as well as new menu offerings and promotional activities. The fast-food restaurant operator witnessed a relatively upward movement across the board on a year-over-year basis. Comparable sales growth stepped up from 4.9% in April 2010 and 3.6% from March 2011.

Geographically, Europe and Asia/Pacific, Middle East and Africa (APMEA) were the major contributors to the month's growth followed by the United States.

In the United States, comparable sales nudged up to 4.0% from 3.8% in April 2010. The uptick was aided by the popularity of McCafe premium beverages, including the recently launched McCafe shakes, Frappes and Smoothies, and featured core products like the Big Mac and Quarter Pounder with Cheese.

Europe sustained its momentum with 6.5% growth and was up 120 basis points year over year. Stronger performance in Europe came from France, Russia and the U.K. Unique premium menu offerings, including premium beef and chicken options, sustained focus on multiple-tier menus, new products across all price tiers, and a restaurant reimaging program contributed to the month's performance.

Driven by healthy performances in China, Japan and Australia, the reported month's comparable sales shot up to 6.5% in APMEA from 3.9% in April 2010. Continued focus on core value menu offerings, variety in menus as well as locally relevant items drove the segment.

System-wide sales increased 12.7%, or 7.5% in constant currencies, in the month under review.

Our Take

We are impressed with the company's business in Europe, which remained unperturbed by the implementation of some austerity measures. Even value added tax increases in some European countries this January did not keep traffic away. Going forward, McDonald's U.S. plans to brew more McCafe options to become a beverage destination, and leverage core products like Chicken McNuggets and the burger line-up.

The company has pointed out that coffee represented only 2% of sales two years ago and now represents over 6% of sales with room for additional growth. Management plans to continue promoting the McCafe line-up with expectations for continued benefits from Frappes and Smoothies in 2011. This summer, the chain has Strawberry Lemonade Smoothie and another new flavor in the offing. Beverages are also important outside the United States. In China, the company had more than 145 McCafes and, in Europe, more than 1,350.

On the flip side, the competitive environment is heating up. Japan, one of the prime markets for McDonald's, will also experience the re-entry of Wendy's/Arby's Group Inc. (NYSE: WEN), with the first location expected to open in Tokyo later this year.

McDonald's currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

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