UPDATE 2-Profit beat, dividend send DineEquity shares up

Wed Feb 27, 2013 12:24pm EST

By Lisa Baertlein

Feb 27 (Reuters) - Applebee's and IHOP restaurants owner DineEquity Inc posted better-than-expected quarterly profit on Wednesday and announced a generous dividend, sending its shares up almost 5 percent.

Those two servings of good news helped investors shrug off a decline in traffic at both Applebee's and IHOP during the fourth quarter.

Shares in DineEquity were up $3.46, or 4.8 percent, to $75.74 in midday trading on the New York Stock Exchange.

Chains ranging from fast-food leaders McDonald's Corp and Burger King Worldwide Inc to DineEquity rival Darden Restaurants Inc have signaled lackluster spending by U.S. diners since the start of the year.

Darden warned on Friday that profits at its Olive Garden and Red Lobster chains were being squeezed as customers retrenched because of the Jan. 1 U.S. payroll tax hike and higher gasoline prices.

The recent tax changes have had a "negative impact" on discretionary spending, but it is too soon to tell what the duration and magnitude of that will be, DineEquity Chief Executive Julia Stewart said on a conference call with analysts.

DineEquity was formed following IHOP's $2 billion leveraged buyout of the Applebee's bar-and-grill restaurant chain in 2007.

The company, which has been selling restaurants to franchisees, said net income fell 34 percent to $18 million, or 97 cents per share, from a year earlier.

Excluding items, DineEquity earned 83 cents per share in the quarter ended Dec. 31, slightly above analysts' expectations of 82 cents per share.

Total revenue at DineEquity fell 35 percent to $158.6 million in the fourth quarter, due to restaurant sales to franchisees.

Fourth-quarter sales at restaurants open at least 18 months rose 0.9 percent at Applebee's and fell 2.6 percent at IHOP. Visits to both chains declined during the quarter, when IHOP diners also spent less per visit.

For 2013, DineEquity forecast U.S. same-restaurant sales at both Applebee's and IHOP in the range of down 1.5 percent to up 1.5 percent.

DineEquity separately announced a first-quarter dividend of 75 cents per share of common stock.

The related dividend yield appeared to be one of the best in both the restaurant and consumer sectors, Janney Capital Markets analyst Mark Kalinowski wrote in a client note.

Given the stock's nearly 50 percent gain over the last year, "we view this development ... as a classic 'sell on good news'-type situation," said Kalinowski, who downgraded DineEquity shares to "neutral" from "buy."

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