PZZA: Papa John’s Drops the Pizza

By William Trent, CFA of Stock Market Beat

Small Cap Watch List and Mid Cap Watch List member Papa John’s International (PZZA) reported earnings last night. Highlights:

# Fourth quarter earnings per diluted share of $0.59 in 2006 vs. $0.42 in 2005 ($0.55 in 2006 vs. $0.36 in 2005, excluding the consolidation of the company’s franchisee-owned cheese purchasing entity, BIBP Commodities, Inc. (BIBP))

# Fourth quarter 2006 earnings includes a $0.07 benefit from a 53rd week of operations and a $0.05 benefit from the settlement of certain tax issues

# 37 net Papa John’s restaurant openings during the quarter and 89 for all of 2006

# Domestic system-wide comparable sales decreased 0.5% for the quarter and increased 3.1% for the year

# Earnings guidance for 2007 reaffirmed at a range of $1.48 to $1.56 per diluted share, excluding the impact of consolidating BIBP’s results

# Board of Directors approved a $50 million increase to an aggregate of $675 million for repurchases of the company’s common stock

Yahoo reports the consensus estimate at $0.46, comparable to $0.36 in 2005. Since the $0.36 excludes BIBP, the extra week and the tax settlement, it looks like apples-for-apples the earnings report missed by $0.03. That thesis is further reinforced by the “reaffirmed” full-year guidance, which now looks to be made on a gooey dough of share buybacks.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Plantronics (PLT) put options

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