Insider Selling In Darden Restaurants Slows In Q4
Insider selling in Darden Restaurants (NYSE: DRI) has been heavy all year but slowed dramatically during the 4th quarter. Total selling to date is worth $49 million or about 341,800 shares and is split among a number of senior VPs, the COO, CEO, a director, and a number of large shareholders. The bad news is that selling amounts to about 2.6% of the shares outstanding and whittled insider holdings down to less than 1.0%. The good news is that institutions have been net buyers all year and the activity has been ramping. Institutional buying in Q4 to date is worth more than $1.25 billion and is outpacing selling by more than 2 to 1. So far in 2022 institutional buying has outpaced selling by $1.38 billion dollars or about 7.1% of the market cap, a far more important statistic than insider selling.
Darden Beats Consensus, Falls On Flawed Guidance
Darden Restaurants had a good quarter in which strength in all operating segments outpaced the consensus and delivered results above the pre-COVID levels. The company reported $2.27 in net consolidated revenue for a gain of 36.7% over last year and 10% above the 2019 levels. The gains were driven by a strong 34.4% YOY comp for open restaurants aided by the addition of new stores. On a segment basis, Fine Dining led with a gain of 61.6% and was followed by a strong 43% increase in Other, 31.1% increase at LongHorn Steakhouse, and a 29.3% increase at Olive Garden.
Moving down to the earnings, the margin came in a bit above expectations and helped to drive a beat on the bottom line as well. The GAAP of $1.48 is double the last year’s earnings and beat by $0.04 on leveraged gains related to the reopening. The bad news is that guidance, while positive, is flawed. The company is expecting FY revenue to come in a range above the previous range and with the midpoint above the previous midpoint but the earnings outlook is less robust. The earnings guidance was narrowed at the low end leaving the high end of $7.60 unchanged relative to the consensus of $7.61. While we see the potential for upside surprises, this guidance is assuming inflationary pressures to worsen and opens the door for weaker than expected results as well.
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Darden Restaurants Capital Return Program Unchanged
As disappointing as the guidance is, the company’s balance sheet and cash flow are still in good shape and fueling a healthy capital return program. The core of the program is the 2.9% dividend yield, a yield that we view as safe with a potential for growth, with the addition of buybacks to help boost the total return. The company repurchased 1.8 million shares for $266 million during the past quarter and there is still $761 million left for future purchases. That’s worth about 3.9% of share prices and should help support price action over the next two to three quarters.
The Technical Outlook: Darden Restaurants Pulls Back To Support
Shares of Darden Restaurants have been in a trading range the past few months and are now at the bottom of the range. The Q2 results and outlook have shares down more than 4.0% in premarket trading and looking like they may fall farther. The caveat is that support will likely be strong at the bottom of the range, near the $136 level, so we don’t expect the pullback to get very far. Longer-term, Darden continues to present a reopening/comeback play on foodservice and one that comes with a healthy dividend and buyback program. In our view, investors looking to get into the sector may wish to use this pullback as an entry point. The caution is that support at the $136 level is not guaranteed so it may also be wise to wait before committing any funds.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Darden Restaurants (DRI)||$138.56||-0.6%||3.18%||19.82||Buy||$167.67|