Darden Restaurants' strong earnings lift casual dining shares

NEW YORK, Jun 25, 2008 (Thomson Financial via COMTEX) -- DRI | Quote | Chart | News | PowerRating -- Casual dining stocks rose Wednesday as sentiment towards the sector improved after Darden Restaurants Inc. reported quarterly earnings that topped expectations and raised its dividend.

Shares of Darden rallied as much as 6% to $33.50 in intraday trading, before paring some gains to last trade 5.1% up at $33.21.

The Orlando, Fla.-based restaurant operator late Tuesday posted fourth-quarter adjusted earnings from continuing operations of 78 cents a share, exceeding the mean 75-cent estimate of analysts polled by Thomson Reuters.

Revenue for the period rose to $1.83 billion from $1.46 billion, versus a mean Street estimate of $1.82 billion.

In addition, Darden raised its quarterly dividend 11% to 20 cents from 18 cents a share.

UBS analyst David Palmer reiterated his buy rating following the results and said that the company's 2009 per-share earnings guidance of 7% to 8% is "conservative unless consumer demand deteriorates significantly post-tax rebates."

Palmer said same-store sales in the casual dining industry accelerated in May compared with April largely helped by tax rebates, and Darden's solid sales trends "provide an encouraging read-through" for trends at Brinker International Inc.

That said, "we would not be surprised if the casual dining stocks under our coverage remain somewhat range-bound until we get our first look at how sales trends hold up after the 'tax rebate effect' begins to diminish."

Shares of Brinker rallied 4.5% to $19.70, while Texas Roadhouse Inc. jumped 5.5% to $9.73, and Kona Grill Inc. rose 5.2% to $7.26.

Elsewhere, PF Chang's China Bistro Inc. gained 3.9% to $24.08 and California Pizza Kitchen Inc. added 3.1% to $12.58. Wanfeng Zhou wz/vj

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