EARNINGS PREVIEW: US Restaurants Seen Buoyed By International Sales

TAKING THE PULSE: Most restaurants are expected to report stronger bottom lines in their latest quarters. Many raised prices to counter untenable increases in commodity costs, which is tricky because they're still trying to attract price-sensitive eaters in a weak economy. Chains also continued to pour money into expansion in China and to a lesser extent, other emerging international markets. Those chains that already have a strong presence in those areas are seen performing particularly well.

 COMPANIES TO WATCH: 
 
 McDonald's Corp. (MCD) - Reports Jan. 24

Wall Street Expectations: Analysts surveyed by Thomson Reuters expect earnings of $1.16 a share on revenue of $6.22 billion. For the same period a year earlier, profit was $1.11 a share including a small benefit linked to a 2007 license transaction, and revenue was $5.97 billion.

Key Issues: McDonald's, which succeeded during the downturn through a dedication to lower prices and an increasingly diverse menu, raised prices in the latest period but continued to add new menu options, such as oatmeal for breakfast. Like many, it's looking for China to be the growth driver in coming years and plans to boost capital spending there by 40% this year. The bottom line will suffer slightly from unfavorable foreign exchange.

 
 Brinker International Inc. (EAT) - Reports Jan. 25

Wall Street Expectations: Analysts predict adjusted earnings from continuing operations of 31 cents a share on revenue of $671 million. The company recorded profit of 29 cents a share on $781.9 million in revenue in the year-ago period.

Key Issues: Brinker management has warned of more sales pressure as the owner of Chili's Grill & Bar keeps scaling back promotions, though an improved cost structure should continue to underlie profit. Brinker is trying to wean itself off the heavy discounting caused by oversaturation in the bar-and-grill sector. However, the company is using a lunch discount as it tries to draw diners attracted to fast-casual restaurants like Chipotle Mexican Grill Inc. (CMG). Despite the pessimistic sales outlook, Brinker's board last month approved another $325 million in share buybacks.

 
 Starbucks Corp. (SBUX) - Reports Jan. 26

Wall Street Expectations: Analysts predict earnings will rise to 39 cents a share on revenue of $2.93 billion. A year earlier, profit was 32 cents a share including a small restructuring charge and revenue was $2.72 billion.

Key Issues: The coffee behemoth's successful turnaround has yielded surging profit and a straight year of comparable-sales increases, with growth balanced at home and abroad. But the company is among those that raised prices in the period because of climbing commodities costs. It also has robust plans for Chinese expansion--it wants to triple its stores in China in five years and open its first coffee-bean farm there--and has increased its attention on India as well. It continues to extend its lucrative Via instant-coffee brand, although most Starbucks's headlines recently concerned its vitriolic face-off with Kraft Foods Inc. (KFT) over terminating a grocery-distribution pact.

 
 Yum! Brands Inc. (YUM) - Reports Feb. 2

Wall Street Expectations: Earnings and revenue are predicted to rise to 60 cents a share and $3.5 billion, respectively. A year prior, profit was 45 cents a share including a small amount of goodwill impairments and other items, while revenue was $3.37 billion.

Key Issues: The owner of KFC, Pizza Hut and Taco Bell is poised to push the percentage of its total operating profit derived from China above 50%. Yum already leads other fast-food chain companies there by number of locations. Yum it calls only the "ground floor" of its plans in the country. The company's domestic business was weak in the previous quarter, though. While Chief Executive David Novak warned in a television interview the company is considering raising prices, the increases haven't appeared, which may put Yum under more margin pressure than rivals.

 
 Wendy's/Arby's Group Inc. (WEN) - Expected March 3

Wall Street Expectations: Analysts expect the company to break even on revenue of $831 million. Profit a year earlier was 3 cents a share with charges--it was 7 cents excluding them--on revenue of $900.9 million.

Key Issues: Although the company's stock rose in the fourth quarter, the strength had more to do with takeover speculation than signs of robust improvement. In the third quarter, the company swung to a loss on charges and continuing sales weakness, while margins suffered from commodities' priciness. But like Yum, Wendy's/Arby's announced no price increases to ease the pressure. In November, the company was anxious to know what billionaire Nelson Peltz's Trian Fund Management had in store for its nearly one-quarter equity stake, but Trian was mostly silent on the matter.

(The Thomson Reuters estimates and year-earlier results may not be comparable because of one-time items and other adjustments.)

-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com

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