Papa John’s 1Q18 Earnings Didn’t Meet Analysts’ Expectations

In 1Q18, Papa John’s (PZZA) posted an adjusted EPS (earnings per share) of $0.50—a fall of 35.1% from $0.77 in 1Q17. The company fell short of analysts’ EPS estimate of $0.62. The lower revenue and EBIT margin offset the positive effects of the lower effective tax rate and share repurchases, which caused the decline in Papa John’s 1Q18 EPS.

Papa John’s effective tax rate was 22.3% in 1Q18 compared to 28.6% in 1Q17. The decline in the effective tax rate was due to a lower corporate tax rate in the US, which was partially offset by share-based compensation tax deductions. In the past four quarters, from the beginning of 2Q17 until the end of 1Q18, Papa John’s repurchased $316.2 million worth of shares. In 1Q18, the company repurchased 2.0 million shares for $119.7 million. Share repurchases drive the company’s EPS by lowering the number of shares outstanding.

In the above graph, you can see that Papa John’s didn’t meet analysts’ expectations twice in the last five quarters. When the company doesn’t meet the expectations, the stock price tends to fall.

During the same period, Domino’s Pizza (DPZ) and Yum! Brands (YUM) posted EPS growth of 58.7% and 38.5%, respectively.

After Papa John’s posted it 1Q18 earnings, management reiterated its 2018 guidance. For 2018, management expect the company’s EPS to be $2.40–$2.60, which represents a fall of 4.5% to 12.0% from the adjusted EPS of $2.72 in 2017. Papa John’s expects its 2018 same-store sales growth to be -3% to flat in North America and 3.0%–5.0% in international markets. Papa John’s expects to increase the unit count 3.0%–5.0% in 2018.