Dunkin’, parent of Dunkin’ Donuts and Baskin-Robbins, reported adjusted net income for the second quarter of $24.7 million, a drop of -3.3% from the same period a year ago. Revenue rose 4.4%, from $150.4 million to $157 million. McDonald’s Corp. (NYSE: MCD) reported second quarter earnings about a week before Dunkin’s IPO and handily beat estimates. Yum! Brands, Inc. (NYSE: YUM), too, beat estimates and raised guidance as well. Dunkin’ is going to have to go some to compete in this sector.

One of the more interesting observations about the fast food sector is that each of the big players achieved its recent success in a different way. Starbucks closed hundreds of stores and fired 12,000 workers. McDonald’s grew same-store sales in all its regions in the second quarter with revenue and operating profit both growing strongly. Yum relies on diversity much more than does McDonald’s, with Pizza Hut, KFC, and Taco Bell brands developing at different paces in different places.

Dunkin’ noted in its earnings report that it was focusing on driving same-store sales, expanding in the US, and seeking faster growth internationally for both its brands. Dunkin’ appears to be trying to achieve growth using both McDonald’s- and Yum-like approaches. The company reported 3.2% same-store sales growth in the US, led by the Dunkin’ Donuts brand. The company is also expanding globally, having added 343 Dunkin’ stores and 251 Baskin-Robbins stores in the past 12 months.

The strategy appears to be to throw as much as Dunkin’ can at the wall and see what sticks. Trying to follow in the footsteps of both McDonald’s and Yum will inevitably lead to a reaction from both. Dunkin’ may not be in a position to stand up to that kind of warfare.

McDonald’s, for example, holds cash and equivalents that are 10 times as large as Dunkin’s. If the golden arches decide to eat cost increases in an effort to keep prices low, Dunkin’ can’t really fight that battle. Likewise, Yum, with its international breadth, can take pretty precise aim at Dunkin’ if the larger company feels threatened in any market.

Dunkin’ holds on to long-term debt of $1.85 billion, a lot for a company with a net cash flow from operations of just $38.5 million. If the company tries to float more debt, which is not unlikely, the share price could take a real beating.

Dunkin’s shares are down nearly -4.5% in early trading today, at $26.56, in a range of $24.97-$31.94. Volume has been fairly light, though, compared with the average volume of 12 million shares traded in the first few days of trading. McDonald’s shares are up fractionally, while both Starbucks and Yum Brands shares are trading down slightly. The PowerShares Dynamic Food & Beverage ETF (NYSE: PBJ) is down about -1% as well, at $18.99, in a 52-week range of $15.15-$20.60.

Paul Ausick

How much influence do individual company earnings have on an ETF? A reasonable guess may be “not much” because most ETFs hold a diverse bundle of stocks and no single stock should move the fund a lot. But that doesn’t account for the predictive and psychological impacts of a very good (or a very poor) earnings report from a particular company. And in sector-specific funds an early report often sets the tone for investor sentiment. Last week’s solid same-store sales reports, for example, boosted several retail-heavy ETFs to new 52-week highs.

In the financial sector, both JP Morgan Chase, which reports earnings on Thursday, and Citigroup, which reports on Friday, are well represented in the iShares Dow Jones US Financial Services ETF (NYSE: IYG) and the Financial Select Sector SPDR (NYSE: XLF). IYG holds nearly 12% of its assets in Chase and another 9.3% in Citi. XLF maintains nearly 8.9% of its assets in XLF and another 6.7% in Citi. We think that Citi will be a bellwether for the entire financial sector and that Chase could send the financials soaring if the bank raises it guidance.

Vanguard Financials ETF (NYSE: VFH) and SPDR KBW Bank (NYSE: KBE) hold nearly 9% of assets in Chase and more than 7% of assets in Citi, respectively. Together with IYG and XLF, all four of these ETFs are likely to respond strongly to the Chase and Citi earnings reports.

Google reports earnings on Thursday and the company’s stock accounts for about 8.5% of the assets in the First Trust Dow Jones Internet Index (NYSE: FDN). The iShares Dow Jones US Technology ETF (NYSE: IYW) holds 5.9% of its assets in Google stock and the Technology Select Sector SPDR (NYSE: XLK) holds 5.21% of its assets in Google as well. Even the massive PowerShares QQQ (NYSE: QQQ) holds more than 5% of its $24 billion in assets in Google stock. Google’s earnings always have an impact on the entire internet sector and the company’s influence in these ETFs will reflect that.

One internet ETF that does not hold any shares in Google is the Internet HOLDRS (NYSE: HHH), which got its start before Google became a public company and does not add new components to its original holdings. Regardless of that omission HHH, with nearly 44% of holdings in Amazon alone, will likely react to Google’s earnings in the same way as the other technology ETFs.

The PowerShares Dynamic Food & Beverage ETF (NYSE: PBJ) holds about 5% of its assets in the shares of Yum! Brands, which reports on Wednesday. Yum!’s earnings indicate the direction for the entire fast food and casual dining segment in the US, and perhaps more important, in China. Chinese inflation has now topped 6% and that could have a sobering effect on dining out among Chinese consumers as well as on other discretionary consumption in the country.

Yum! also comprises nearly 2% of assets of the Consumer Discretionary Select Sector SPDR (NYSE: XLY). Another portfolio stock, Marriot International, also reports earnings next week. A key number to watch for in Marriott’s report is its revenue per available room, which the company expects to rise by 6%-8% compared with the first quarter.

Neither the Market Vectors Gold Miners ETF (NYSE: GDX) nor the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) holds any shares in NovaGold Resources, but because the Canadian firm is the first gold miner to report earnings (Wednesday) it will be closely watched. NovaGold’s shares have been widely sold-off along with many peers and while it may appear to be a value choice, the company has some deep problems.  Analysts are expecting an EPS loss of -$0.10 on nearly invisible revenue. In a rational world nothing that happens with NovaGold should have any effect on either GDX or GDXJ, but sometimes general interest in gold trumps rationality.

The iShares S&P SmallCap 600 Index (NYSE: IJR) makes this week’s watch list not so much for being tied to earnings as for the fact that the fund’s shares posted an all time high of $75.81 last week. Cubist Pharmaceuticals, which reports on Thursday, is included in the fund’s holdings, but at less than 0.5% of assets Cubist shouldn’t have much impact on a fund with 600 stocks in its portfolio. Still, Cubist is one of the top three performers in IJR’s portfolio, likely on possible interest in Cubist as a takeover target. A good report from Cubist could put a jolt into IJR.

Paul Ausick

Once again, we have dropped most of the ‘leveraged’ and ‘Short’ or ‘Ultra-Short’ ETF’s.  The idea is to show which sectors were the winners and losers.  We also screen out if too many ETF’s tied to the same sector are showing up so we can show the winners and losers by groups rather than solely be the numbers.  Here are today’s:

ETF WINNERS:
iShares MSCI Taiwan Index (EWT)                             +0.83%
PowerShares Dynamic Insurance (PIC)                    +0.63%
Ultra Utilities ProShares (UPW)                                   +0.61%
Utilities Select Sector SPDR (XLU)                              +0.57%
Vanguard Long-Term Bond ETF (BLV)                       +0.50%
iShares Lehman 20+ Year Treasury (TLT)                +0.48%
PowerShares Dynamic Food & Beverage (PBJ)       +0.46%
iShares S&P Global Cons Discretionary (RXI)          +0.45%
PowerShares Dynamic Deep Value    (PVM)             +0.47%

ETF LOSERS:
iShares MSCI Mexico Index (EWW)                             -1.95%
PowerShares DB Silver (DBS)                                     -1.9%
SPDR S&P Oil & Gas Equipment & Services(XES) -1.87%
SPDR S&P Homebuilders (XHB)                                 -1.86%
iShares Dow Jones US Home Construction (ITB)    -1.79%
DJ Wilshire REIT ETF (RWR)                                        -1.71%
HealthShares European Drugs (HRJ)                         -1.70%
iShares S&P Latin America 40 Index (ILF)                   -1.7%
iShares MSCI Malaysia Index (EWM)                             -1.66%
KBW Capital Markets ETF    (KCE)                                 -1.65%
First Trust Value Line Equity Allc Index (FVI)                 -1.6%

Jon C. Ogg
June 25, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.