EAT Brinker International Inc

TAKING THE PULSE: Pressure from commodities is expected to hurt major U.S. restaurant companies through the first half of 2012, with fuel and food costs narrowing margins and causing restaurants to raise their menu prices.

Despite those challenges, Wall Street expects many of these companies to post stronger earnings for the first three months of 2012, as chains such as McDonald's, Yum Brands and Starbucks rely more on emerging markets, especially China, for growth.

 
   COMPANIES TO WATCH: 
 
   Yum Brands Inc. (YUM) - April 18 

Wall Street Expectations: Analysts surveyed by Thomson Reuters predict a first-quarter profit of 72 cents a share on revenue of $2.7 billion. A year ago, Yum posted income of 54 cents, or 63 cents excluding some items, on revenue of $2.43 billion.

Key Issues: The parent company of Taco Bell, KFC and Pizza Hut has staked much of its future on emerging markets, especially China, where its Pizza Hut and KFC chains are booming in urban areas. China's rising food and labor costs, as well as signs of an economic slowdown, have put Yum at risk of losing its overseas edge. But robust same-store sales growth there in the fourth quarter proved momentum remains. Yum's domestic business has struggled, perhaps taking a backseat to its international efforts. Last year, it shed two smaller domestic chains to focus more on international growth. But Yum has said it expects to make a comeback in the U.S. this year, with Taco Bell undergoing a major revamp and Pizza Hut showing same-store sales growing at year's end.

 
   Chipotle Mexican Grill Inc. (CMG) - April 19 

Wall Street Expectations: The company is expected to report earnings of $1.92 a share and revenue of $631 million. Last year, Chipotle's income came in at $1.46 and revenue was $509.4 million.

Key Issues: Increased costs for high-quality ingredients led to higher prices at the fast-casual burrito chain but haven't hurt sales as consumers have shown little resistance to the price increases. Margins, though, should continue to suffer because of higher commodity costs. While same-restaurant sales aren't expected to reach the 11% growth of 2011, the company is planting seeds for future expansion, looking to build out in Europe and open a second Asian-themed chain, ShopHouse Southeast Asian Kitchen, in Washington, D.C., later this year.

 
   McDonald's Corp. (MCD) - April 20 

Wall Street Expectations: Analysts expect a profit of $1.23 a share on revenue of $6.54 billion. A year earlier, the company reported earnings of $1.15 and revenue of $6.11 billion.

Key Issues: Even as the biggest restaurant chain in the world has been increasing its menu prices to offset commodity inflation, McDonald's has been able to boost guest traffic and grow sales faster than its competitors. Its edge comes from menu innovation--balancing higher-margin products such as oatmeal and smoothies against dollar-menu offerings, pushing limited-time items and expanding to more foods, such as its new popcorn chicken. But weak February sales growth, pressured by economic uncertainty in Europe and higher food costs in the U.S., could hinder first-quarter income. Added pressure from foreign-currency translation and extra expenses are also weighing on McDonald's profit outlook this year.

 
   Brinker International Inc. (EAT) - April 23 

Wall Street Expectations: The market forecasts a fiscal third-quarter profit of 55 cents a share on revenue of $728 million. The company a year earlier reported earnings of 45 cents a share, or 47 cents excluding some items, on revenue of $717.1 million.

Key Issues: Brinker is in the second stage of an overhaul plan for its Chili's Grill & Bar casual-dining chain, in which kitchen retrofitting is helping it lower labor costs and offer a more-diverse menu. While Chili's turnaround strategies appeared to be holding their ground in the company's first quarter, the chain's menu and marketing improvements hadn't seemed to create the stability that investors have been seeking. Its second-quarter same-store sales growth disappointed and earnings sank as charges masked improved revenue and margins. The upcoming third-quarter report should shed light on the turnaround's sustainability, as well as management's decision to back its same-store sales outlook despite a rough second quarter.

 
   Starbucks Corp. (SBUX) - April 26 

Wall Street Expectations: Analysts expect fiscal second-quarter income of 39 cents a share on revenue of $3.18 billion. A year ago, Starbucks posted a profit of 34 cents a share and revenue of $2.79 billion.

Key Issues: Starbucks is pursuing a handful of new projects to expand beyond its core cafes in the U.S., which currently account for about 75% of its business. The company will debut a new single-serve espresso machine called Verismo in the autumn, is pushing into the energy-drink market and has opened its first juice store this year. China, a major focal point, is expected to become Starbucks's second-largest market in the next few years, as the company plans to reach 1,500 stores in mainland China by 2015, from about 500 currently. In its fiscal first quarter, China and Asia-Pacific region same-store sales jumped 20%, dwarfing growth in the Americas and Europe. Commodities will continue to pressure results through the remainder of fiscal 2012, but they didn't stop Starbucks from raising the low-end of its earnings guidance in January.

-By Ben Fox Rubin, Dow Jones Newswires; 212-416-3108; ben.rubin@dowjones.com

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