Why Del Taco Restaurants, Inc. Stock Plummeted

What happened

Shares of fast-food company Del Taco (NASDAQ: TACO) fell as much as 22.6% on Friday, following the company's third-quarter earnings release. The stock is down about 19% at the time of this writing.

While Del Taco's third-quarter results were in line with analysts' consensus estimates for the quarter, the company's decision to revise its guidance on some key metrics could have some investors worried. Cost pressures, particularly from food inflation, led the company to reduce its outlook for expected restaurant contribution margins.

Some other figures for the company's outlook were moderated, including Del Taco's outlook for the top end of its expected revenue range.

So what

Del Taco now expects a restaurant contribution margin for the full year to be between 19.5% and 19.8%, down from a previous range of 19.8% to 20.3%. In addition, Del Taco said it now expects total 2017 revenue between $472 million and $475 million. It was previously expecting full-year revenue between $470 million and $476 million.

On a bright note, the company's new Queso product looks promising. Management said it is "mixing at approximately 7% of sales..."

Now what

It's worth noting that Del Taco's overall outlook for its business hasn't changed much. For instance, while the high end of its full-year revenue outlook is $1 million lower than it was, the company increased the low end of its revenue guidance range by $2 million. In addition, management now expects full-year earnings per share (EPS) to be between $0.52 and $0.55, up from a previous range of $0.52 and $0.54.

Also, the company's Queso success bodes well for more new ingredients, as management says it will "enable exciting future product innovation across our menu."

10 stocks we like better than Del Taco RestaurantsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Del Taco Restaurants wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.