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What Drove Papa John’s EPS in 3Q17?

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3Q17 performance

For 3Q17, Papa John’s (PZZA) reported adjusted EPS (earnings per share) of $0.60, which was in line with the analysts’ expectation. The company’s 3Q17 EPS represents a growth of 5.3% from $0.57 in 3Q16.

Papa John’s EPS growth was driven by revenue growth, a lower effective tax rate, and share repurchases. However, some of the EPS growth was offset by a decline in the company’s EBIT margin.

The company’s effective tax rate was 26.8%, compared with 28.4% in 3Q16. The reduction in the effective tax rate was due to the adoption of new guidance for share-based compensation, required reductions in some states, and local income tax reserves.

Since the beginning of 4Q17 to the end of 3Q17, Papa John’s has repurchased shares worth ~$134.7 million. The company had repurchased shares worth $29.7 million as of October 24, 2017.

Peer comparisons and outlook

For the same period, Domino’s Pizza (DPZ) and Yum! Brands (YUM) reported EPS growth of 32.3% and 22.0%, respectively.

Papa John’s has lowered its 2017 EPS growth guidance to be in the range of 3.0%–7.0%, down from the previous estimate of 8.0%–12.0%. The company management blames the decline in NFL (National Football League) viewership for its lower EPS guidance.

For the next four quarters, analysts are expecting PZZA to post EPS of $2.93, which would mean a growth of 8.1% from $2.71 in the corresponding four quarters of the previous year. This EPS growth is expected to be driven by revenue growth, the expansion of EBIT margins, and share repurchases. As of October 24, 2017, the company had ~$485.9 million under its share repurchase program.

Dividends

On October 27, 2017, Papa John’s announced a dividend of $0.225 per share, at a yield of 1.4% and a payout ratio of 33.0%. For 4Q17, analysts are expecting the company to pay a dividend of $0.225, which would take the total for 2017 to $0.85, representing an 11.8% rise over $0.76 in 2016.

Next, we’ll look at Papa John’s valuation multiple.

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