Sonic's (SONC) Q2 Earnings Beat, Revenues Miss Estimates

Sonic Corp. (NASDAQ:SONC) has announced mixed results for the second quarter of fiscal 2018 wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings of 17 cents outpaced the consensus estimate and improved from the prior-year quarter’s 15 cents by 13.3%. The reported figure incorporated benefits of the lower tax rate and improved costs. Without the impact of the tax reform, the bottom line would have declined 13% from the year-ago quarter, primarily due to lower comps.

The company’s second quarter generally faces volatility due to weather conditions. Moreover, since Sonic’s product mix primarily consists of ice-creams and beverages, winters do not particularly mark an ideal time for sales growth. Further, a highly competitive industrial landscape with restaurant bigwigs doling out offers and discounts has led to a sales slump during the reported quarter. Meanwhile, management lowered its fiscal 2018 outlook.

Sonic Corp. Price, Consensus and EPS Surprise

Sonic Corp. Price, Consensus and EPS Surprise | Sonic Corp. Quote

All the above factors might have also hurt investors’ sentiment as shares of Sonic lost 4.7% in after-hours trading post the company’s earnings release on Mar 27. Additionally, the stock has gained 0.5% in the past year, underperforming the industry’s rally of 10.2%.

Let us delve deeper into the numbers.

Revenues and Comps

Total revenues of $88.1 million missed the consensus estimate of $93.9 million by 6.2%. The top line also declined 12% year over year, affected by an unfavorable weather and intense competitive pressure.

System comps dipped 2.9% in the quarter, consisting of a 2.8% comps decrease at franchise drive-ins and a 3.7% decline at company drive-ins.

Operating Highlights & Net Income

Total costs and expenses dropped 5.6% year over year in the fiscal second quarter to nearly $73.2 million. This upside was mostly attributable to an overall reduction in the total cost of company drive-in sales, having declined 17.8% year over year to $47.1 million. Company drive-in margins expanded by 40 basis points with the opening of eight new drive-ins.

Net income for the period came in at $19.6 million, reflecting a whopping 78.8% year-over-year increase, favored primarily by tax benefits.

Balance Sheet

Cash and cash equivalents as of Feb 28, 2018 were $64.2 million, up from $22.3 million as of Aug 31, 2017. Long-term debt increased to $706.5 million at the end of the fiscal second quarter from $628.1 million reported as of Aug 31, 2017.

Stockholder’s deficit rose to $252.7 million from $201 million in the same time period. During the quarter, the company repurchased 1.2 million outstanding shares.

Fiscal 2018 Outlook Trimmed

For fiscal 2018, Sonic expects adjusted earnings per share to be up 2-7% year over year, excluding the impact of the U.S. tax reform (lower than the earlier guided range of 5-10%). Including tax benefits, adjusted EPS is expected in the range of $1.43-$1.50. The Zacks Consensus Estimate for earnings in 2018 is pegged at $1.52, higher than the company’s guided range.

Comps are projected in the band of down 1% to up 1% year over year, lower than the earlier view of flat to up 2% comps. Drive-in-level margins are anticipated within 15-15.5%, down from the previous prediction of 15.1-15.7%, depending on the degree of comps growth at company drive-ins.

Sonic is likely to repurchase approximately $160 million shares across the fiscal year and deliver a quarterly cash dividend of 16 cents per share. Free cash flow is estimated at $60-$63 million (tweaked from $60-$65 million in the past) for 2018.

Zacks Rank & Peer Release

Sonic carries a Zacks Rank #3 (Hold).

Darden (NYSE:DRI) reported mixed third-quarter fiscal 2018 results wherein adjusted earnings of $1.71 per share beat the consensus mark of $1.64 by 4.3%. Earnings also increased 29.5% year over year on the back of higher revenues.

Stocks to Consider

Two better-ranked stocks in the restaurant space are Dine Brands (NYSE:DIN) and Ruth’s Hospitality Group (NASDAQ:RUTH) . While Dine Brands sports a Zacks Rank #1 (Strong Buy), Ruth’s Hospitality carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Both Dine Brands’ and Ruth’s Hospitality’s earnings for 2018 are expected to grow 22.7%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>