Inefficient operations deterring Darden’s net results

Darden Restaurants, Inc. Headquartered in Florida, USA is full service Restaurant Company. The Company owns and operates more than 1,500 restaurants. The Company's restaurant brands include Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's and Yard House.

Net earnings plummet as Olive Garden fails to deliver

Darden’s revenue from its restaurant business amounted to $6.28 billion in the fiscal year 2014 which was a 6% increase from the prior period. This increase was primarily driven by addition of new restaurants but was offset by decrease in its olive garden sales. Company’s earnings from operations however was down 36% to $174.6 million in the year 2014 from the prior year as costs surpassed the growth in revenue. Further net earnings tumbled 31% to $286 million from the prior fiscal year which however included the revenue from discontinued operations of $103 million. This also resulted in lower EPS for the fiscal 2014 of $1.40 compared to $1.84 reported for the prior year.

Increase in DPS despite earnings slump

The downside in earnings however did not deter the management in delivering higher dividends for the fiscal 2014 as DPS increased by 10% from the year 2013. The Dividend of $2.20 for year 2014 caused the dividend yield to increase to 4.4% which is the highest recorded in the past three years.

Sale proceeds of Red Lobster to pay debt

Darden reduced its long term debt by a small $14.80 million as of May 25, 2014 as total borrowings stood at $2.48 billion. According to company’s press release on July 28, 2015 Darden will use partial proceeds from the recent sale of its Red Lobster business (approximately $1 billion) to retire its outstanding debt. The remaining net proceeds of approximately $500 million to $600 million are expected to be deployed for a new share repurchase program.

Market consensus

As Darden’s recent performance points out, the company is in a transition phase and focused on cost reduction and more efficient operations. Revenue, Net income and consequently EPS are expected to be negative with restaurant not being able to deliver amidst slowing sales of Olive Garden. Regardless of Darden’s performance the company is foreseen to continue paying same dividends in the future.

Upcoming events

The Company has its first quarter earnings release and earnings call scheduled on 12th September 2014.

Annual Shareholders Meeting will be held on October 10, 2014

Major shareholders

Following are 3 major shareholders of company:

Capital Research Global Investors 11.87% holding with 15.70 million shares

Starboard Value LP 8.03% holding with 10.63 million shares

The Vanguard Group 7.03% holding with 9.31 million shares

significant change in shareholding

Following are the major shareholding transactions that took place recently:

Starboard Value LP buying 2.41 million shares

Fidelity Management & Research Company buying 1.97 million shares

Cambiar Investors LLC. selling 1.96 million shares

Tiger Consumer Management, L.L.C. selling 1.75 million shares

Darden’s Stock fluctuates sharply in the last five years owing to its struggling operating performance