EARNINGS PREVIEW: US Restaurants Look For Right Discount Mix

TAKING THE PULSE: Discounting is still the name of the game in the restaurant sector, but some players, particularly in the casual-dining segment, have pulled back from their best deals after finding the increased traffic didn't make up for slimmer margins. Fast-food chains continue to fight battles on two fronts, ramping up both value deals and premium offerings.

COMPANIES TO WATCH:

Yum Brands Inc. (YUM) - reports Oct. 6

Wall Street Expectations: The operator of the Taco Bell, Pizza Hut and KFC chains is expected to report earnings of 58 cents a share on revenue of $2.79 billion, according to analysts polled by Thomson Reuters. A year earlier, the figures were 58 cents and $2.8 billion, respectively.

Key Issues: As growth remains sluggish in the U.S., Yum has been leaning on its international operations, but now even the formerly fast-growing China market is a question mark. KFC has benefited from its healthier grilled chicken and hopes to score more points from a marketing tie-in with the National Football League. Meanwhile, Pizza Hut has been promoting offerings as low as $5 and Taco Bell, which contributes 60% of U.S. profits, has been getting set to expand into international markets.

Brinker International Inc. (EAT) - reports Oct. 20

Wall Street Expectations: Analysts predict earnings of 14 cents on revenue of $768 million. A year earlier, earnings were 23 cents on revenue of $984.4 million, including the Macaroni Grill. Brinker sold an 80% stake in the Italian chain in December.

Key Issues: The owner of Chili's Grill & Bar and other chains has pulled back from its steep discounting and smaller portions after finding they didn't goose up revenue as hoped. Wall Street will be looking for signs that new strategies are paying off, especially after Brinker's bleak outlook sent the sector's stocks tumbling early last month. The company Thursday will brink back Chili's "baby back ribs" jingle from the late 1980s in commercials for ribs made with a new smoking process.

McDonald's Corp. (MCD) - reports Oct. 22

Wall Street Expectations: The company is projected to earn $1.10 on revenue of $6.09 billion. Year-ago earnings were $1.05 while revenue was $6.27 billion.

Key Issues: McDonald's, one of the strongest performers during the recession, has seen sales growth slow lately amid rising unemployment and cutthroat competition. Still, the fast-food giant has scored with its dollar menu, though the company is likely to face some pressure from archrival Burger King Corp.'s (BKC) decision to offer a $1 double cheeseburger. Some on Wall Street wonder if the company has ceded some of the low end as it moved upmarket with its Angus burgers and McCafe offerings.

Wendy's/Arby's Group Inc. (WEN) - reports Nov. 5

Wall Street Expectations: The company is seen posting earnings of 6 cents on revenue of $929 million. A year earlier, the predecessor company posted a 13-cent loss and revenue of $310.4 million in the last quarter before former Arby's parent Triarc bought Wendy's.

Key Issues: The company's purchase of Wendy's has played out well as that chain has consistently outperformed Arby's, which was slower to join the discounting wars. Still, both reported smaller-than-expected sales declines last quarter, suggesting a turnaround may be on the way. Wendy's, encouraged by the success of its new boneless wings, has a burgeoning pipeline of products under development, including a premium burger coming by year's end.

Starbucks Corp. (SBUX) - reporting date to be announced

Wall Street Expectations: Analysts estimate the coffeehouse chain will report a 21-cent profit on revenue of $2.39 billion. Starbucks earned 1 cent a share on revenue of $2.52 billion last year.

Key Issues: The coffee giant has been pretty successful in getting its operations turned around, with store closures and streamlining showing up on the bottom line over the past few quarters. However, Starbucks is still working hard to hone its value proposition to lure cash-strapped consumers who may be willing to give McDonald's new coffee offerings a try. It is running a promotion this weekend to see if customers can tell the difference between the company's brewed coffee and its instant variety being rolled out nationally.

(The Thomson Reuters estimate and year-ago figures may not be comparable due to one-time items and other adjustments.)

-By Jay Miller, Dow Jones Newswires; 212-416-2355; [e-mail]