Wendy’s Turnaround Jeopardy — Earnings Fall Short

The company gave guidance for the 2014 full year of $0.34 to $0.36 in earnings per share. The consensus estimates are $0.35 in earnings per share and $2.07 billion in revenue.

Net income for the third quarter was $22.8 million, compared to the net loss of $1.9 million in the same quarter in the previous year.

Wendy’s had same-restaurant sales increase 2% and franchise same-restaurant sales increased 0.5% in the third quarter. The restaurant margin was 15.5%, compared to 15.6% in the previous year. The decrease was due mostly to commodity costs.

The company announced a plan to realign and reinvest its resources to focus primarily on restaurant development and consumer-facing technology. It believes this initiative, coupled with the sale of its Canadian restaurants, will yield a total cost reduction of approximately $30 million.

Emil Brolick, CEO of Wendy’s, said:

While our third-quarter same-restaurant sales growth at Company-operated restaurants was slightly less than our expectations, our two-year comps were quite strong at 5.2 percent. We also remain on track to achieve our full-year 2014 Adjusted Earnings Per Share guidance, despite third-quarter Adjusted EBITDA results that were slightly below our projections.

Our expectations for the third quarter included a 20-percent year-over-year revenue decline from the sale of Company-operated restaurants to franchisees. We also absorbed beef costs that were much higher than our initial projections. In addition, a year-over-year increase in temporary Image Activation restaurant closure weeks of nearly two and a half times had a negative impact on our revenue and profitability.

ALSO READ: 7 Commodities With Collapsing Prices

Shares of Wendy’s closed Wednesday down 1% at $8.06. Following the release of the earnings report, the initial response in the premarket was negative and shares were down about 2% to $7.90.

The consensus analyst price target is $9.30, and the 52-week trading range is $7.61 to $10.27. Wendy’s has a market cap of nearly $3 billion.