After all but throwing in the towel on the Bahama Breeze and Smokey Bones restaurant concepts, Darden Restaurants (NYSE:DRI) was beginning to resemble a two-trick pony, overly reliant on its mature-yet-lucrative Red Lobster and Olive Garden concepts. But just as fast as you can say "manicotti formaggio," Darden announced the acquisition of Rare Hospitality (NASDAQ:RARE), with its flagship LongHorn Steakhouses and Capital Grille restaurants. Fools will learn more about the combination when Darden reports first-quarter results tomorrow.

What analysts say:

  • Buy, sell, or waffle? Nineteen analysts currently follow Darden: Eight are bullish on the stock, 10 are on the fence with hold ratings, and one recommends you sell the shares. The Motley Fool CAPS community currently gives the company a two-star rating (out of five).
  • Revenues. Analysts are projecting $1.4 billion in first-quarter sales -- flat performance compared to last year's results.
  • Earnings. Analysts expect quarterly earnings of $0.70 per share, almost 19% more than last year's reported $0.59.

What management says:
Back when Darden announced fourth-quarter results, management said it expected full-year 2008 comps of 2%-4%, and 3% unit growth "comprised mainly of Olive Garden restaurants." It also expected the end result to be 10%-12% diluted earnings growth from continuing operations. That was all before August's press release announcing the acquisition of Rare Hospitality; still, it demonstrates overall trends remain respectable for Red Lobster and Olive Garden.

What management does:
Despite a recently uneven track record regarding internally developed restaurant concepts, management has kept its core franchises intact, and it's successfully kept them fresh and innovative after decades of serving patrons. While near-term profitability has suffered from charges related to closing Bahama Breeze and Smokey Bones stores, cash flow generation remains strong enough to open new restaurants, maintain existing ones, buy back stock, and pay a 1.7% dividend yield.

Margins

01/06

04/06

07/06

10/06

01/07

04/07

Gross

22.6%

23.4%

22.7%

22.8%

22.8%

23.5%

Operating

9.3%

10.3%

9.6%

9.5%

9.5%

10.3%

Net

5.9%

6.3%

5.9%

6.0%

5.9%

3.6%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The company certainly doesn't pay out as much cash to investors as fast-food giant McDonald's (NYSE:MCD), which recently increased its dividend by 50%, pushing its yield to 2.8%. Nor can it match Arby's operator Triarc (NYSE:TRY), which sports a yield of about 2.3%. But its 1.7% yield is fairly attractive compared to casual-dining competitors like Bob Evans Farms (NASDAQ:BOBE), which pays out 1.8%, and Applebee's International (NASDAQ:APPB), which yields a meager 0.9%.

The Rare Hospitality acquisition could serve investors well, allowing Darden to cut fat by eliminating redundant staffing -- and leaving room for higher future payouts. It could also lead to tastier top-line prospects, since Capital Grille is an appealing high-end steakhouse. The jury is still out on the LongHorn restaurants, but Darden is clearly well-suited to squeeze profits from older concepts.

Further Foolishness: