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Darden Restaurants Inc. (NYSE:DRI) includes some of the most well known restaurant chains in the country including Red Lobster, Olive Garden and LongHorn SteakHouse. The company has gone through highs and lows this year, but overall DRI stock is up 16% year-to-date. On Tuesday, hedge fund investor Barington Capital proposed splitting the company in two, one will be for the more established brands Red Lobster and Olive Garden and a second for the smaller growth brands including LongHorn Steakhouse and others. In Barington Capital's slideshow it claims that Darden has underperformed recently and by breaking the company up it will be able to deliver stronger returns and unlock more value for shareholders by focusing on different strategies for the two groups.

Darden is expected to report FQ2 2014 earnings before the market opens on Thursday, December 19th. The information below is derived from data submitted to the Estimize platform by a set of Buy Side and Independent analyst contributors.

The current Wall Street consensus expectation is for DRI to report 20-cent EPS and $2.067B revenue while the current Estimize consensus from Buy Side and Independent contributing analysts is 19-cent EPS and $2.061B revenue. Over the past six quarters Estimize has been more accurate four times on EPS and Wall Street has been more accurate four times on revenue.

The Estimize consensus is more accurate than Wall Street up to 69.5% of the time because it represents unbiased market expectations. By tapping into a wider distribution of over 3,300 contributors including hedge fund and independent analysts as well as students and non professionals, Estimize is better able to capture the true market outlook.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a larger differential relative to the three previous quarters.

Since DRI's last earnings report Estimize and Wall Street expectations have both been revised downward. Over the past four months the Wall Street consensus trend for EPS has fallen from 25 cents to 20 cents while Wall Street revenue expectations have decreased from $2.090B to $2.068B. The Estimize EPS consensus has returned to where it began at 19 cents but the revenue forecast has declined from $2.063B to $2.061B.

The distribution of estimates published by analysts on Estimize range from 17 cent to 20 cent EPS and $2.054B to $2.070B in revenues. This quarter Wall Street's expectations fall within our analysts' range for both EPS and revenue. Additionally, we're seeing a smaller distribution of estimates this quarter. The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A smaller distribution signaling the potential for less volatility post earnings, or greater vice versa.

The analyst with the highest estimate confidence rating this quarter is Zach Lehner who projects 18 cent EPS and $2.060B in revenue. Estimate confidence ratings are calculated through algorithms developed by our deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. Zach Lehner is ranked fourth overall among over 3,300 contributing analysts. In this case the analyst with the top confidence rating is making a more bearish call than both Wall Street and the Estimize consensus.

This quarter our community is expecting another weak report out of Darden. Over the past four quarters year over year EPS was down every single time.

If Darden continues to miss analyst expectations and profitability continues to slip, it may increase the likelihood of the company agreeing to the break-up that Barington Capital has suggested. Splitting into two groups, one for established restaurant chains to focus on higher dividends and one for smaller restaurant chains to focus on stock growth, could improve the focus and profitability of each set. Of course even if the report tomorrow is good, the company could still agree that splitting in two would help unlock value going forward.

Disclosure: None.

Source: Why A Poor Earnings Report From Darden Restaurants Could Help Shareholders