Dunkin' Brands (NASDAQ:DNKN), the global quick-serve restaurant chain behind the Dunkin' Donuts and Baskin-Robbins brands, has watched its stock widely underperform the overall market in 2014. Weak first quarter earnings played a primary role in its decline. The company has just announced that second quarter results will be released on July 24; investors hope that if one weak report can send shares falling, then one strong report can send shares soaring. Let's take a look at Dunkin's most recent report and the expectations for the upcoming release to determine if the company is going to cook up an earnings beat and decide if it represents a long-term investment opportunity today.

Source: Wikimedia Commons

Disappointing first-quarter results
On April 24, Dunkin' released its first quarter report and the results fell short of the consensus analyst estimates. Here's a summary:

Earnings Per Share $0.33 $0.36
Revenue $171.95 million $172.66 million

Source: Estimize

Earnings per share increased 13.8% and revenue increased 6.2% year over year as comparable-store sales increased just 1.2% at Dunkin' Donuts locations in the U.S. and decreased 2.4% internationally. The company blamed "severe weather" in the northeast for its weak performance in the U.S., but noted that this is not expected to be an ongoing issue. Operating profit increased 7% to $75.6 million and the operating margin flexed its muscles, expanding 30 basis points to 44%, helped by occupancy expenses rising just 1.8% for the quarter. 

Source: Wikimedia Commons

The above financial results led to ample free cash flow generation. This, paired with Dunkin' $256.93 million in cash and cash equivalents to begin the quarter, enabled the company to repurchase approximately $22.04 million worth of its common stock and pay out $24.52 million in dividends. Dunkin' ended the quarter with over $202 million in cash and cash equivalents, so it could easily accelerate repurchases or raise its dividend in the second half of the year.

In terms of expansion, Dunkin' opened 96 new restaurants during the quarter; this included 69 new Dunkin' Donuts locations in the United States. The company now operates 18,254 locations worldwide between both of its brands, including 7,746 Dunkin' Donuts stores in the United States.

Overall, it was a fairly weak quarter for Dunkin' Brands. The market reacted by sending its shares 1.89% lower in the trading session that followed. Shares have continued lower in the weeks since, but strong second quarter results could point it back in a positive direction.

The expectations & what to watch for
Dunkin' announced that second quarter results will be released before the market opens on July 24, and the current expectations call for significant growth. Here's an overview:

MetricExpectedYear Ago
Earnings Per Share $0.47 $0.41
Revenue $198.74 million $182.50 million

Source: Estimize

These expectations call for earnings per share to increase 14.6% and for revenue to increase 8.9% year over year. This seems attainable and would result in a record-setting performance. Other than the key metrics, here are four other important things to watch for:

  1. Third-Quarter Outlook: It will be highly important for Dunkin' to provide outlook on the third quarter that meets analysts' expectations. Currently, the consensus estimates call for earnings per share of $0.50 and revenue of $201.61 million, representing year-over-year growth of 22% and 8.2%, respectively. 
  2. Full-Year Outlook: While providing adequate outlook on the third quarter, it will be important for Dunkin' to also reaffirm its full year outlook. This outlook was for earnings per share in the range of $1.79-$1.83, an increase of 17%-20% from fiscal 2013, along with revenue growth of 6%-8% and operating profit growth of 10%-12%.
  3. Expansion: Watch for the number of new stores opened during the quarter and make sure Dunkin' gets on pace to reach its expansion goals for the year. In its first quarter report, the company reiterated its intention to open 685-800 new stores globally between both of its brands; it opened just 96 in the first quarter, so it would be ideal if it were to open 195-235 new stores in the second quarter.
  4. Competitor Results: Investors will want to keep an eye on Dunkin's largest competitor, Starbucks (NASDAQ:SBUX), which is also scheduled to release earnings results on July 24. Starbucks has outpaced Dunkin' in comparable-store sales growth by a wide margin over the last several quarters, so it will be important to make sure that the gap does not widen further. In addition, since Dunkin' is focussed on expanding in the western United States and Starbucks is more focussed internationally, it would be ideal for Dunkin' to start taking share in this region.
If Dunkin' Brands can satisfy earnings per share, revenue, and outlook expectations, and I think it will, its stock will likely spike higher. With this being said, I also believe that Dunkin' Brands represents one of the best long-term investment opportunities in the quick-serve restaurant industry today because it trades at favorable valuations, has a healthy 2%+ dividend, and has expansion plans that set it up for continued success going forward. 

The Foolish bottom line

Source: Dunkin' Donuts

Dunkin' Brands is home to two of the world's most popular brands, but this has not led to a strong performance for its stock. Weak first quarter earnings sent its shares on a downward spiral, but I think strong second quarter results will put shares back on an upward track.

I must also add that I believe that Dunkin' Brands represents one of the best investment opportunities in its industry today. I don't say this for the purpose of trading around its upcoming earnings release, but instead because it trades at just 21 times fiscal 2015's estimated earnings, has a very healthy 2% dividend, and the company's planned expansion in the western United States will be a significant source of growth in the years ahead. Foolish investors should take a closer look and consider initiating positions immediately.