Stocks had a volatile week last week but ended up with slight gains. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) closed the third quarter on a high note, and both indexes are up significantly so far in 2016.
For the week ahead, Yum Brands (NYSE:YUM), Constellation Brands (NYSE:STZ), and Darden Restaurants (NYSE:DRI) shareholders could see big moves in their stocks in response to key updates on the companies' operating trends. Here are a few important questions that investors will have answered over the next few trading days.
How will Yum Brands' profits hold up?
Fast-food giant Yum Brands will post its quarterly results after the market closes on Tuesday, and it plans to hold its earnings conference call the following morning. Like rivals, it's likely to report slowing customer traffic trends. Sonic, for example, just last week warned about a surprising drop in traffic that's led to falling sales for its fiscal fourth quarter.
It will be interesting to see how Yum's three brands, Taco Bell, Pizza Hut, and KFC, are dealing with these industry challenges. Shareholders should keep an eye on the company's profit margins, which have trended higher even as growth has slowed -- producing a 22% spike in net income over the last six months.
Investors are also gearing up for the spinoff of Yum's China division, which is scheduled for October 31. Shareholders will receive one share of the new Yum China company for each share of Yum Brands stock that they own. Cash returns are also benefiting from this move, with executives targeting $6 billion of stock buyback spending tied to this spinoff.
Can Constellation brands keep its growth pace going?
Constellation Brands is one of the market's biggest success stories lately. Shares are up 27% over the last year as the alcoholic beverage giant's revenue and profits surge higher thanks mainly to soaring beer sales.
Investors should watch for another double-digit boost in beer volume across the Modelo, Corona, and Pacifico lines this quarter that helps overall sales rise by around 13%. Consensus estimates have profits improving to $1.65 per share from the prior year's $1.56 per share, which seems achievable given that higher profitability sent net income up by 22% last quarter. Judging by the stock's rise, investors may also expect the company to raise, or at least affirm, its full-year outlook, which calls for earnings to jump by almost $1 per share to $6.13. Those high expectations raise the risk that shareholders could see a pullback in the stock following anything but impressive results this week.
Will Darden lower its growth forecast?
Investors aren't expecting great news from Olive Garden owner Darden Restaurants when it posts earnings results on Tuesday morning. Profit growth should be strong, with earnings rising 20%, according to consensus estimates. But sales are projected to just inch higher by 2% to $1.7 billion.
The big question for shareholders is whether or not Darden can keep up its positive momentum in the face of industry struggles. Comparable-store sales are already trending lower. They were barely positive last quarter, as comps improved by 2% at Olive Garden and by 1% at LongHorn Steakhouse. In the previous quarter, those numbers were a much stronger 7% and 5%, respectively.
Its last official forecast, issued in June, calls for overall comps to rise by about 2% this year as earnings grow to $3.80 per share. However, as customers dial back their spending on eating out, its customer traffic trends could be turning negative. That would likely convince executives to lower their growth outlook this week. In any case, investors will be eager to hear CEO Gene Lee's latest reading on the strength of the restaurant industry.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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