McDonald's Franchisee Arcos Dorados Beats On Q3 Earnings, Systemwide Comparable Sales Jump

Consumer stocks were advancing pre-bell Wednesday as the Consumer Staples Select Sector SPDR Fund was up 0.1% and the Consumer Discretionary Select Sector SPDR Fund was 0.7% higher recently.

CAVA Group shares rose past 16% after the company reported higher fiscal Q3 earnings and revenue. The company also raised its 2024 same-restaurant sales growth outlook.

Dole shares were down over 3% after the company reported a decline in Q3 adjusted earnings.

Arcos Dorados shares were over 4% higher even after the company reported a lower net income and almost flat revenue for Q3.

Arcos Dorados (ARCO) came out with quarterly earnings of $0.17 per share, beating the Zacks Consensus Estimate of $0.16 per share. This compares to earnings of $0.30 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 6.25%. A quarter ago, it was expected that this restaurant owner would post earnings of $0.13 per share when it actually produced earnings of $0.13, delivering no surprise.

Over the last four quarters, the company has surpassed consensus EPS estimates just once.

Arcos Dorados, which belongs to the Zacks Retail - Restaurants industry, posted revenues of $1.13 billion for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 3.97%. This compares to year-ago revenues of $1.12 billion. The company has topped consensus revenue estimates three times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

Arcos Dorados shares have lost about 33.8% since the beginning of the year versus the S&P 500's gain of 25.5%.

What's Next for Arcos Dorados?

While Arcos Dorados has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Arcos Dorados: unfavorable. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #4 (Sell) for the stock. So, the shares are expected to underperform the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.14 on $1.16 billion in revenues for the coming quarter and $0.66 on $4.4 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Retail - Restaurants is currently in the top 33% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Another stock from the same industry, Cracker Barrel Old Country Store (CBRL), has yet to report results for the quarter ended October 2024.

This restaurant operator is expected to post quarterly earnings of $0.40 per share in its upcoming report, which represents a year-over-year change of -21.6%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

Cracker Barrel Old Country Store's revenues are expected to be $824.3 million, up 0.1% from the year-ago quarter.

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