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Why Did Wendy’s Lower Its 2017 Earnings Guidance?

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Part 6
Why Did Wendy’s Lower Its 2017 Earnings Guidance? PART 6 OF 8

Wendy’s Earnings Didn’t Meet Analysts’ Estimates in 3Q17

3Q17 performance

In 3Q17, Wendy’s (WEN) posted an adjusted EPS (earnings per share) of $0.09—a fall of 18.2% from $0.11 in 3Q16. Analysts expected the company to post EPS of $0.12.

Wendy&#8217;s Earnings Didn&#8217;t Meet Analysts’ Estimates in 3Q17

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The decline in Wendy’s revenue and higher tax rate offset the expansion in the EBIT margins and share repurchases in the last four quarters, which caused the EPS to fall. Compared to 3Q16, the effective tax rate on Wendy’s income rose from 37.2% in 3Q16 to 54.8% in 4Q16. In the last four quarters, the company repurchased 11.5 million shares for $145.3 million. By the end of 3Q17, the company had ~$59 million under its share repurchase program, which expires on March 4, 2018. Share repurchases boost the company’s earnings by lowering the number of share outstanding.

Peer comparisons and outlook

During the same period, McDonald’s (MCD) and Restaurants Brands International (QSR) posted EPS growth of 8.6% and 34.9%, respectively. Analysts expect Jack in the Box’s (JACK) EPS to fall 12.6%.

After posting its 3Q17 earnings, Wendy’s management lowered its 2017 EPS guidance to $0.43–$0.45 from an earlier estimate of $0.45–$0.47. For the next four quarters, analysts expect Wendy’s to post EPS of $0.51, which represents 24.4% growth from $0.41 in the same four quarters the previous year.

Dividends

On November 2, 2017, Wendy’s announced that it will pay quarterly dividends of $0.07 at a yield of 1.9% and a payout ratio of 63.6%. For 4Q17, analysts expect the company to pay dividends of $0.07. It would take the total dividends for 2017 to $0.28, which represents 12.0% growth from $0.25 in 2016.

In the next part, we’ll discuss Wendy’s valuation multiple.

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