Fiscal 3Q18 performance
In fiscal 3Q!8, Darden Restaurants (DRI) posted adjusted EPS (earnings per share) of $1.71, which represents growth of 29.5% from $1.32 in fiscal 3Q17. Analysts were expecting the company to post EPS of $1.64.
Darden’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 EBIT margins. The company’s effective tax rate stood at an abnormally low level of 4.4% due to several factors. The application of the new tax rate for fiscal 1Q18 and fiscal 2Q18 lowered the tax rate by 7.0%, the resolution of other tax matters lowered the tax rate by 4.0%, and the hedging of deferred compensation also lowered the tax rate by approximately 4.0%.
In the last four quarters, the company repurchased 2.7 million shares for approximately $223 million, and by the end of fiscal 3Q18, the company had approximately $262 million remaining under its share repurchase program. Share repurchases reduce the number of shares outstanding, driving EPS.
Peer comparisons and outlook
Darden’s management raised its 2018 EPS guidance to a range of $4.75–$4.80 from its previous estimate of $4.70–$4.78. The company has lowered its 2018 effective tax rate guidance to 16.0%–16.5% from its earlier guidance of 18.0%, which has prompted the company’s management to raise its fiscal 2018 guidance. For the next four quarters, analysts expect Darden to post EPS of $5.23, which represents a rise of 13.4% from its $4.61 in the corresponding four quarters of the previous year.
On March 22, Darden’s board declared a dividend of $0.63 per share to be paid on May 1 to shareholders recorded as of April 10. The dividends were announced at a dividend yield of 2.93%, given the stock price of $85.94 as of March 22.
Next, we’ll look at Darden’s valuation multiple.