Arcos Dorados Faces a Growth Slowdown

Next Tuesday, Arcos Dorados (NYSE: ARCO  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

With its huge network of McDonald's franchises throughout Latin America, Arcos Dorados has capitalized on the rise of the consumer middle class in many emerging-market countries. But lately, the company has seen its formerly rapid growth pace slow down substantially. Let's take an early look at what's been happening with Arcos Dorados over the past quarter, and what we're likely to see in its quarterly report.

Stats on Arcos Dorados

 

 

Analyst EPS Estimate

$0.06

Change From Year-Ago EPS

(50%)

Revenue Estimate

$960.4 million

Change From Year-Ago Revenue

4.2%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Can Arcos Dorados look golden again?
Analysts have pulled back on their earnings expectations for Arcos Dorados in recent months, reducing their calls for the just-ended quarter by $0.08 per share, and reducing full-year 2013 and 2014 estimates by $0.09 and $0.13 per share, respectively. The stock has pulled back on that pessimism, falling about 6% since mid-January.

After impressive growth for such a long time, Arcos Dorados has had to deal with challenging conditions in Latin America for more than a year now. The stock plunged 40% during 2012, as the region faced a tough economic environment that held back Arcos' business, and those conditions haven't improved quickly enough to get earnings moving higher yet. The recent currency devaluation in Venezuela back in February was just the latest economic hit for the company and, with a significant presence in the country, Arcos will have to keep watching Venezuela to make sure it protects its interests there in the aftermath of former Venezuelan President Hugo Chavez's death.

Moreover, Arcos has had to deal with some competition to its business model. Late last year, Burger King finally allowed a multinational joint venture to go forward to develop Central American markets. If that deal spreads into South America, as well, it could pose a more unified threat to Arcos Dorados.

Still, in assessing Arcos Dorados' report, you shouldn't fall prey to too much pessimism about the growth opportunities in the fast-food franchisee's home markets. Instead, watch for where the company sees the best prospects for the future, and see how it plans to make the most of those opportunities. After its share-price plunge, Arcos Dorados stock could soar if it can get its growth back on track.

Like Arcos Dorados, McDonald's also turned in a dismal year in 2012, badly underperforming the broader market. Looking ahead, can the Golden Arches reclaim its throne atop the restaurant industry, or will this unsettling trend continue? Our top analyst weighs in on McDonald's future in a recent premium report on the company. Click here now to find out whether a buying opportunity has emerged for this global juggernaut.

Click here to add Arcos Dorados to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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