Lower Food Costs May Boost Restaurant ETF This Earnings Season

The dining industry and restaurant-related exchange traded fund may enjoy a strong second-quarter earnings season as lower food costs helped bolster diners’ margins.

“Prices were some of the lowest levels in four years,” David Maloni, chief commodity strategist at the American Restaurant Association, told CNBC. “Egg prices are declining… cheese and chicken prices are attractive.”

Over the second quarter, food costs on average were 15% lower year-over-year, the fourth consecutive quarter of double-digit deflation compared to the previous year-ago period.

For example, egg prices dipped 64% in the second quarter year-over-year, dairy fell 20% and cheese decreased 12%. These common food ingredients represent significant savings for family-restaurants, like Denny’s (NasdaqGS: DENN) and DineEquity (NYSE: DIN), which cater toward the breakfast crowd.

“Commodities continue to benefit margins with the breakfast (restaurant) day-part benefiting the most,” Evercore analyst Matt McGinley said in a research note.


Moreover, beef prices were down 15% in the second quarter year-over-year and chicken prices were 11% lower.

Morgan Stanley analyst John Glass pointed out that chicken wing prices were slipping, which is good for the industry as chicken makes up about “10 to 20 percent” of the cost of goods sold for fast-food operators and other chains.