Dunkin' Brands Group, Inc. (DNKN - Snapshot Report) posted mixed third-quarter 2014 results wherein earnings beat the Zacks Consensus Estimate, but revenues missed the same.

The company's adjusted earnings of 49 cents per share beat the Zacks Consensus Estimate by 4.3%. Further, the figure was higher than the prior-year figure of 41 cents by 19.5%, mainly due to higher revenues.

Dunkin' Brands Group, Inc - Earnings Surprise | FindTheBest

 The restaurateur's revenues increased 3.4% year over year to $192.6 million, driven primarily by increased royalty income due to system-wide sales growth. However, it missed the Zacks Consensus Estimate of $196.0 million by 1.5%, possibly due to soft international comps.

Inside the Headline Numbers

Dunkin' Brands operates through its Dunkin’ Donuts and Baskin-Robbins brands.

System-wide comps increased 5.7%, lower than the year-ago quarter’s increase of 5.8%. The comps growth was primarily due to global store development and Dunkin' Donuts’ U.S. comparable store sales growth.

Dunkin’ Donuts

Comps increased 2% in the Dunkin’ Donuts U.S. division, driven by higher traffic and increased average ticket resulting from the company’s continued focus on product and marketing innovation. However, comps growth was much lower than the 4.2% improvement in the prior-year period. The decline was due to the sale of all company-owned restaurants in the Atlanta market early in the second quarter.

In the Dunkin’ Donuts International division, comps declined 2.9%, worse than a decline of 1.4% in the prior-year quarter. Poor results in South Korea primarily led to the decline.

Baskin Robbins

Comps increased 5.8% in the Baskin Robbins U.S. division, better than the 3.2% growth in the prior-year period. Baskin-Robbins U.S. comparable store sales growth was driven by sales of Cups & Cones, Cakes, and Beverages under a new program offering guests a free waffle cone with the purchase of a second scoop of ice cream, along with strong online ice cream cake ordering.

At the Baskin Robbins International division, comps declined 1.5%, which compared unfavorably with a 0.7% improvement in the prior-year quarter. Poor performance in Japan as well as South Korea led to the comps decline.

Store Update

In the third quarter, Dunkin' Brands’ franchisees and licensees opened 197 restaurants worldwide. This includes 120 Dunkin' Donuts U.S. locations, 61 Baskin-Robbins International locations, 10 Dunkin' Donuts International locations and 6 Baskin-Robbins U.S. locations. Additionally, Dunkin' Donuts U.S. franchisees remodeled 120 restaurants during the quarter.

Long-Term Guidance

The company expects U.S. comps in the 2–4% range on a long-term basis. Revenue growth is expected between 6% and 8%. Adjusted operating income growth is expected to range within 10–12%. Adjusted operating income margin expansion is expected in the range of 150–200 basis points per year. Adjusted earnings per share are expected to grow at the rate of 15%.

Total net unit development is expected to be roughly 4–6%, with opportunity to accelerate.

Our Take

Dunkin’ Brands’ top line was hurt in this quarter by a saturated fast food restaurant segment coupled with a sluggish macroeconomic environment and reduced consumer spending.  Also, a major share of Dunkin’ Brands revenues comes from the breakfast segment, where companies like McDonald's Corp. (MCD - Analyst Report), Starbucks Corp. (SBUX - Analyst Report) and Yum! Brands, Inc.’s (YUM - Analyst Report) Taco Bell are eating into Dunkin’ Brands’ market share. However, the company has been working to expand its doughnut-and-coffee brand in the U.S. and improve its performance globally.

Also, we are encouraged by the company’s efforts to drive traffic by speeding up service at its shops and redesigning prep stations to meet busy morning hours. Additionally, menu innovation and addition of healthier items will perk up sales in the coming quarters.

Dunkin’ Brands currently has a Zacks Rank #3 (Hold).