Earnings Preview: GIS, DRI, RHT


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General Mills (GIS)

December 20, Before the Market Open

General Mills is expected to earn $0.87 per share in the latest quarter, up from $0.82 per share in the same period last year. However, revenue is expected to slip from last year, with analysts predicting a dip of more than 4 percent.

Last quarter, the maker of Cheerios and Haagan-Dazs reported a decline in its profit, though the bottom line beat the expectation of market analysts.  Sales dropped 7% to $3.91 billion.

Going into the September earnings announcement, the company lowered its forecast for the quarter.  The warning, which took place on September 7, prompted a sharp sell off in the company's shares.  The decline continued into October, with the stock hovering near multi-month lows from there.  The decline took the stock from a pre-warning level of $70.90 to a multi-month closing low of $60.59 on December 1, its lowest finish since April.

Implied volatility for GIS rose steadily from late October reaching a closing level of 22.7 on December 12, it's highest level since April.  It has been hovering near that level since, reaching 22.7 on December 16 as well.

The ATM Straddle premium for the January 20 expiration, which includes the earnings release, is sitting at $3.47, or 5.5%.  The April 17 expiration, including the next earnings report, is 10.1%.

Darden Restaurants (DRI)

December 20, Before the Market Opens

Darden restaurants is expected to post a quarterly profit of $0.64 per share.  This would be a notable advance from last year's mark of $0.54 per share.  Revenues are projected to edge up by 2.5% to reach a level of $1.65 billion.

Last quarter, profits for Darden, which owns casual dining chains like Olive Garden and LongHorn Steakhouse, climbed 37 percent and the company raised its forecast for the full year.

Implied volatility for DRI has risen steadily since late November, reaching 26.8 on December 14, its highest level since June.  Late last week, it came off that level a bit, closing out last week at 26.3.

The stock price began an advance in late October that continued into the first half of December, topping off with a 52-week closing high of $78.94 on December 8.  The rally was in part fueled by the election results, with investors betting that the incoming Trump Administration will have a looser regulatory framework on issues like the minimum wage and overtime. 

The BITE restaurant ETF also gained significant ground during the same time period, reaching a 52-week high.  Other owners of chain restaurants like DineEquity (DIN) and Buffalo Wild Wings (BWLD) also advanced during the time period.

There is some concern that the valuations in the casual dining space have outpaced reasonable levels, however, and Darden's earnings might become a test of that.  The stock is off its high lately, closing last week at $75.53.

The ATM Straddle premium for the January 20 expiration for DRI is sitting at $4.77, or 6.3%.  This would include the upcoming earnings report.  The April 21 expiration has an ATM Straddle premium of 11.5%.

Red Hat (RHT)

December 21, After the Market Close

Analysts are expecting Red Hat to earn $0.58 per share for the latest quarter, up from $0.48 per share in the same period last year.  Revenues are projected to rise 18% to about $618 million.

Last quarter, Red Hat revealed adjusted earnings that rose to $0.55 per share, from $0.47 per share in the year-ago period.  The results topped analysts' expectation of $0.54 per share.  The company also issued a strong outlook, with a full-year earnings forecast above what analysts were looking for at the time.

Red Hat's stock rose on the September earnings announcement and has held to a range since.  It reached a multi-month closing high of $80.83 on September 30, its highest mark since January.  It has bounced around off this level since, finishing last week at $79.95.

Implied volatility for RHT has risen dramatically from late November, climbing to 33.5 on December 16, its highest level since June.

The premium for RHT's December 23 expiration, including its earnings report, sits at $4.69, or 5.9%.

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To see more upcoming earnings, visit Market Chameleon's Earnings Calendar