Burger King Beats Fourth-Quarter Views

Fast food chains have been big hits with cash-strapped consumers, with companies like McDonald’s (MCD) bucking the slowdown in consumer spending. Burger King’s (BKC) sales have also been rising, though not as much as those of McDonald’s. And the company reported today that fiscal fourth-quarter earnings hit 43 cents a share, up from 37 cents a year ago. That beat Wall Street forecasts of 33 cents a share. But the sales trend could be turning for the big burger chain. Sales fell 2% to $630 million. And profit margins were down due to rising commodity costs. The company wasn’t very optimistic about the next fiscal year either, declining to forecast earnings and saying it expects a “challenging consumer environment.”

Burger King's earnings report wasn't a surprise, though, confirming trends already evident with other fast-food companies. Burger King's largest franchisee, Carroll’s Restaurant Group (TAST) had reported similar results, along with rivals like Jack in the Box (JACK). Wedbush Morgan analyst Rachael Rothman said in a note yesterday that she expects same-store sales to be weak in the U.S. and Latin America and forecasts Burger King’s European results taking a hit because McDonald’s has been gaining share in the region. Still, Rothman raised her price target on the stock by $1 to $19 a share, arguing that Burger King shares are undervalued compared to McDonald’s and Yum! Brands (YUM). Burger King recently traded at 12 times estimated fiscal 2010 earnings of $1.55 a share, compared to a multiple of 13 for McDonald's and nearly 15 for Yum! Brands.

Traders have seen signs that the housing market is stabilizing, and housing stocks could see heaving trading today, following a couple reports on house prices due. The Standard & Poor's/Case-Shiller home price index comes out today and analysts expect it to show that prices in 20 large metro areas fell 16.4% for the 12 months ended in June, down from a 17.1% year-over-year decline in May. The Federal Housing Finance Agency's index of June home prices is also due out, along with a report on second-quarter housing prices. Analysts expect the June index to show that prices are stabilizing too. And it presents a broader snapshot of the country than the Case-Shiller index (though it doesn’t include some types of mortgages that aren’t eligible to be bought by Fannie Mae (FNM) or Freddie Mac (FRE)).

Of course, analysts caution that traders shouldn’t read too much into one month’s housing data. The sector is still seeing a rising tide of foreclosures. Banks are grappling with billions in losses on bad loans, and are keeping a tight leash on lending. Although sales of existing homes rose sharply in July, economists say that prices will keep falling as long as foreclosures are on the rise.

Last month, more than 360,000 homeowners were foreclosed, up more than 30% since last year. And lenders are balking at modifying home loans to bail out homeowners under a government modification plan. Also, the average homeowner has lost 15% of the value of his house, and millions of homeowners now have “negative equity,” owing more than their homes are worth. In other words, even if prices show a slight uptick, there are still plenty of headwinds that could keep the housing market down.

IN OTHER NEWS:

Growth has stalled, unemployment is rising and budget deficits are soaring. Sure, things are a mess. But Federal Reserve Chairman Ben Bernanke looks poised to get another crack at mending the world’s largest economy. President Obama has decided to nominate Bernanke to a second four-year term, according to news reports, with an announcement expected today at 9 a.m. White House chief of staff Rahm Emanuel said the president credits Bernanke for "pulling the economy back from the brink of depression," The Wall Street Journal reported. The full Senate must approve the nomination, but Bernanke is widely expected to make it, though he could face a grilling for some of his policies.

Bernanke has won widespread praise for his rapid-fire efforts to stabilize the economy that drew on every move in the Fed’s playbook.  He lowered interest-rates to near 0%; flooded banks with liquidity; oversaw bailouts of financial institutions; and took unorthodox steps like having the Fed buy mortgage-backed securities. As an economics professor, Bernanke wrote extensively about the causes of the Great Depression and the mistakes policy makers made, and he seems determined not to repeat them. He’s also attempted to make Fed policy more transparent and, unlike his predecessor Alan Greenspan, he has reached out to the public to explain his decisions in plain English.

Of course, now that the crisis has ended, Bernanke faces a tricky balancing act. The U.S. economy is showing signs of life thanks to massive government stimulus effort and a highly accommodative monetary policy. The trick will be figuring out how and when to take away the punch bowl. Go too slow on hiking interest rates and tightening the money supply and Bernanke risks soaring inflation and a spiraling U.S. dollar. Go too fast and he risks choking the recovery before it really takes hold. Traders don’t seem surprised that Bernanke is being renominated. Markets in Asia ended the day down and European stocks fell as traders worried that the world could face a double-dip recession after government stimulus programs pull back.

IN OTHER NEWS: