UPDATE 3-Dunkin' Brands cuts 2014 forecast; shares fall

Thu Jul 24, 2014 11:32am EDT

(Adds CEO comment, byline)

By Lisa Baertlein

July 24 (Reuters) - Dunkin' Brands Group Inc cut its 2014 outlook on Thursday as its U.S. doughnut shops battled fast-food rivals like McDonald's Corp and high milk prices softened profits from its international Baskin-Robbins ice cream business.

Shares of the company, which also reported disappointing second-quarter sales at its established U.S. Dunkin' Donuts franchises, dropped nearly 5 percent in morning trading.

The company also cited weakness in its Baskin-Robbins joint venture in Japan for the reduction in its 2014 forecast.

Dunkin' Brands now expects earnings of $1.73 to $1.77 per share, excluding special items, for this year. Its prior forecast called for $1.79 to $1.83.

The company said it expected sales growth of 5 percent to 7 percent, down from previous expectations of 6 percent to 8 percent.

U.S. Dunkin' Donuts shops account for roughly three-quarters of the Canton, Massachusetts-based company's overall revenue. It lowered its 2014 same-store sales growth target for those stores to 2 percent to 3 percent from 3 percent to 4 percent previously.

Sales at established Dunkin' Donuts franchises in the United States rose 1.8 percent in the second quarter. Analysts polled by Consensus Metrix had expected a 3.3 percent increase.

Executives blamed a cold and rainy start to the spring season, coupled with rampant discounting by fast-food chains.

McDonald's, Dunkin' Donuts' chief competitor, on Tuesday said sales at its established U.S. restaurants fell a steeper-than-expected 1.5 percent in the second quarter.

The world's biggest hamburger chain gave away free coffee during the quarter to defend its dominance in the U.S. fast-food breakfast market from existing competitors and new entrants such as Yum Brands Inc's Taco Bell chain.

"It's a bit of a fistfight," said Dunkin' Brands Chief Executive Officer Nigel Travis, who forecast a continued brawl for market share in the popular coffee and breakfast businesses.

Commodity pressures, however, could ease in the second half. In particular, experts expect global milk prices to decline as increased supplies come to market.

Dunkin Brands' total second-quarter revenue rose 4.6 percent to $190.9 million, below the analysts' average estimate of $198.5 million, according to Thomson Reuters I/B/E/S.

Net income attributable to Dunkin' Brands rose 13 percent to $46.2 million, or 43 cents per share.

Excluding amortization and other charges, earnings were 47 cents per share, in line with analysts' estimates.

Shares of Dunkin' Brands were down 4.9 percent at $41.80 on Nasdaq. (Additional reporting by Shailaja Sharma in Bangalore; Editing by Savio D'Souza, Sriraj Kalluvila, Meredith Mazzilli and Lisa Von Ahn)

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