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Why Did Wendy’s Lower Its 2017 Earnings Guidance?

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Why Did Wendy’s Lower Its 2017 Earnings Guidance? PART 1 OF 8

Wendy’s Stock Fell Due to Its Weak 3Q17 Earnings

3Q17 performance

Wendy’s (WEN) announced its 3Q17 earnings before the market opened on November 8, 2017. The company posted an adjusted EPS (earnings per share) of $0.09 on revenues of $308.0 million. Compared to 3Q16, the company’s EPS fell 18.2%, while its revenues fell 15.4%.

Wendy&#8217;s Stock Fell Due to Its Weak 3Q17 Earnings

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Stock performance

Analysts expected Wendy’s to post EPS of $0.12 on revenues of $310.3 million. After posting its 3Q17 earnings, management lowered its 2017 EPS guidance to $0.43–$0.45 from the earlier guidance of $0.45–$0.47. Management blamed the higher increased tax rate for lowering its 2017 EPS guidance. The lower-than-expected 3Q17 earnings and lower 2017 EPS guidance appear to have made investors skeptical about the company’s future earnings. As a result, Wendy’s stock price fell. As of November 10, 2017, Wendy’s was trading at $14.50, which represents a fall of 1.6% since the announcement of its 3Q17 earnings.

Year-to-date performance

Despite the recent fall in its stock price, Wendy’s has returned 7.2% since the beginning of 2017. During the same period, McDonald’s (MCD), Jack in the Box (JACK), and Restaurant Brands International (QSR) have returned 36.0%, -10.4%, and 36.6%, respectively. Notably, the S&P 500 Index (SPX) and the Consumer Discretionary Select Sector SPDR Fund (XLY) have returned 15.3% and 13.5% YTD (year-to-date), respectively.

Series overview

In this series, we’ll discuss Wendy’s 3Q17 earnings call and compare its performance with analysts’ estimates. We’ll also cover management’s guidance for 2017 and analysts’ estimates for the next four quarters. We’ll finish the series by looking at Wendy’s valuation multiple and analysts’ recommendations.

In the next part, we’ll start our analysis by looking at Wendy’s 3Q17 revenue.

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