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Why Papa John’s 4Q17 Earnings Failed to Meet Analyst Estimates

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4Q17 performance

In 4Q17, Papa John’s (PZZA) posted EPS (earnings per share) of $0.81. However, excluding special items, the company’s adjusted EPS stood at $0.65. Analysts were expecting the company to post adjusted EPS of $0.67. However, lower-than-expected revenue and a contraction in its EBIT margin led Papa John’s to post EPS below analysts’ expectations.

Compared to 4Q16, Papa John’s EPS fell 5.8%. The contraction in EBIT margin more than offset the positive effects of revenue growth, the lower effective tax rate, and share repurchases to lower the company’s EPS. In 4Q17, the company’s effective tax rate stood at 9.6% compared to 30.2% in 4Q16. Also, the company repurchased approximately 3.0 million shares for $209.6 million in the last four quarters. Share repurchases reduce the number of shares outstanding, thus driving its EPS.

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Peer comparison

During the same period, Domino’s Pizza (DPZ) and Yum! Brands (YUM) posted EPS growth of 31.1% and 21.5%, respectively.

Outlook

Papa John’s management expects its 2018 EPS to be in the range of $2.40 to $2.60, which represents a fall in the range of 8.4% to 0.8% from adjusted EPS of $2.62 in 2017. Analysts are expecting the company to post EPS of $2.55, which represents a fall of 2.7% for 2017 adjusted EPS. The decline in revenue and EBIT margin is expected to offset the positive effect of share repurchases to lower the company’s EPS in 2018. Following 4Q17, the company has repurchased shares worth $32.7 million. As of February 20, 2018, the company had approximately $395.0 million left in its share repurchase program.

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