Zacks Industry Outlook Highlights: McDonald's, Brinker International, Panera Bread, AFC Enterprise and Krispy Kreme Doughnuts

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Feb 06, 2013, 09:30 ET

CHICAGO, Feb. 6, 2013 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Restaurants, including McDonald's Corp. (NYSE:MCD), Brinker International Inc. (NYSE:EAT), Panera Bread (Nasdaq:PNRA),AFC Enterprise (Nasdaq:AFCE) and Krispy Kreme Doughnuts, Inc. (NYSE:KKD ).

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A synopsis of today's Industry Outlook is presented below. The full article can be read at

Link: http://www.zacks.com/commentary/25745/restaurant-stock-outlook-feb-2013

The year 2012 started on a relatively positive note for U.S. restaurants. That scenario changed gradually as sales momentum slackened in the sector as the macroeconomic tension, presidential election and the "Fiscal Cliff" raised uncertainties in the market.

Even this year, the industry remains on the receiving end of global economic concerns, fragile consumer confidence, a more expensive food cost environment in the U.S., a sluggish labor market, "Obamacare" and an excess of restaurants in the industry. As a result, we anticipate subdued store sales growth in the medium term.

Statistics also bear out this relatively unfavorable environment. A recent survey by the National Restaurant Association revealed that the Restaurant Performance Index (RPI), measuring the present condition and outlook on the U.S. restaurant industry, was 99.7 in December, down 0.2% sequentially. The figure dropped from the steady-state score of 100.

The Current Situation Index, which measures comparable store sales, traffic count, labor costs and capital expenditures in the restaurant industry, was 99.1 in December, down 0.7% sequentially. This was the fifth below-100 score in six months and the lowest level in almost two years. However, the Expectations Index, which measures the restaurant operators' six-month outlook on the above indicators, was 100.3, up 0.3% from November.

This RPI number connotes that the industry is stressed. Weak sales momentum, a sluggish labor market and slowdown in capital spending suppressed the Current Situation Index.

The Expectations Index managed to beat the safety threshold of 100 for the first time in three months, but the score still reaffirms operators' bearish outlook on the industry over the near term.

Performance of Key Players in Fourth-Quarter 2012

So far, industry behemoth McDonald's Corp. (NYSE:MCD) delivered stronger-than-expected results in the fourth quarter while another renowned operator -- Brinker International Inc. (NYSE:EAT) -- posted in-line earnings. However, most of the company's results are yet to release.

A look at the Earnings ESP (Expected Surprise Prediction - Zacks' proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement) shows that the overall earnings picture for the industry remains mixed. To beat the estimate, a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3.

Among the leading players of the industry, Panera Bread (Nasdaq:PNRA),AFC Enterprise (Nasdaq:AFCE) and Krispy Kreme Doughnuts, Inc. (NYSE:KKD ) will likely beat fourth-quarter earnings.

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