Restaurant Brands’ Revenue Grows on Strong System-wide Sales

Global comparable sales grew by 2% at TH and by 1.7% at BK during Q3 FY16

q1Restaurant Brands International Inc. (NYSE: QSR) announced its Q3 FY16 financial results on October 24th, 2016.

The Oakville, Ontario-based company is one of the world’s largest quick service restaurant (QSR) companies with more than $24 billion in system-wide sales and over 19,000 restaurants in more than 100 countries and U.S. territories. It owns and operates restaurants under the Burger King and Tim Hortons brand names. The Company operates through two segments: TH, which includes all operations of its Tim Hortons brand, and BK, which includes all operations of its Burger King brand. Read more about Restaurant Brands’ financial results below.

Q3 FY16 financial highlights

During Q3 FY16, the Company’s total revenues grew 5.5% to $1.07 billion compared to $1.01 billion in the prior year’s period, primarily as a result of system-wide sales growth at both TH and BK. Global comparable sales grew by 2% at TH and by 1.7% at BK during the reporting quarter.

For Q3 FY16, system net restaurant count grew by 3.8% Y-o-Y; at TH, the restaurant count increased to 28 from 22, and at BK to 143 from 141. System-wide sales at TH grew by 4.8%     Y-o-Y to $1.69 billion, while at BK system-wide sales grew 7% to $4.77 billion.

On a GAAP basis, the Company’s Q3 FY16 net income grew to $86.3 million, or $0.36 per share, versus $49.6 million, or $0.24 per share, in the prior year’s period, primarily due to the non-recurrence of TH transaction and restructuring costs. Adjusted net income jumped 32.8% to $201 million, while adjusted diluted EPS came in higher at $0.43 during the reporting quarter. Adjusted EBITDA, excluding the impact of foreign exchange movements, grew 11.3% to $488.9 million, driven by organic growth at both brands combined with cost discipline.

Source: Company's Presentation
Source: Company’s Presentation

Segmental highlights

Tim Hortons: At TH, comparable Q3 FY16 sales grew by 2.0%, driven by new product launches within core platforms. Restaurant count growth of 3.4% Y-o-Y resulted in system-wide sales growth of 4.8% in constant currency. TH opened 28 net new restaurants during the period and ended the quarter with 4,492 restaurants.

During Q3 FY16, TH total revenues grew 7.1% Y-o-Y to $789.9 million (7.0% excluding the impact of foreign exchange currency movements), primarily driven by system-wide sales growth. TH adjusted EBITDA of $287.1 million grew 17.7% (17.1% excluding the impact of foreign exchange currency movements), primarily driven by organic growth and cost discipline.

Source: Company's Presentation
Source: Company’s Presentation

Burger King: System-wide sales at BK grew 7.0% Y-o-Y in constant currency. Continued strength in Asia/Pacific, Latin America, and the Caribbean regions, along with strength in EMEA region, partially offset by softness in the U.S. and Canada, contributed to comparable sales growth of 1.7% at BK. BK added 143 net new restaurants, during the reporting quarter, growing restaurant count by 3.9% Y-o-Y, and ending the quarter with 15,243 restaurants.

BK total revenues of $285.8 million grew 1.3% (2.7% excluding the impact of foreign exchange currency movements), driven by system-wide sales growth. BK adjusted EBITDA of $201.8 million grew 2.6% (4.2% excluding the impact of foreign exchange currency movements), primarily driven by organic growth.

Source: Company's Presentation
Source: Company’s Presentation

Other highlights

Cash position: As of September 30th, 2016, the company’s total debt amounted to $8.9 billion, and net debt (total debt less cash and cash equivalents of $1.3 billion) was $7.7 billion.

Source: Company's Presentation
Source: Company’s Presentation

Dividends: On October 24th, 2016, the Company’s Board of Directors declared a dividend of $0.17 per common share and Class B exchangeable partnership unit of Restaurant Brands International Limited Partnership for Q4 FY16. The dividend will be payable on January 4th, 2017, to shareholders and unit-holders of record at the close of business on December 8th, 2016. This is a positive change from Restaurant Brands International’s previous quarterly dividend of $0.15.

Source: Company's Presentation
Source: Company’s Presentation

New product launches: Burger King has partnered with PepsiCo Inc.’s (NYSE: PEP) Frito Lay to launch a new product called Mac ’n Cheetos in July 2016. Keeping in mind changing customer preferences, Burger King is testing waters with a new trend of blending fast food with popular snack brands. Mac ’n Cheetos are deep-fried sticks of macaroni and cheese encrusted in Cheetos-flavored breading and is expected to appeal to a younger target audience. Mac ’n Cheetos will be sold for about eight weeks or until supplies run out, according to the Company announcement. Priced at $2.49 for a pack of five bites, Mac ’n Cheetos loads 310 calories, and is already being sold at some Burger King restaurants as part of a pilot phase. Faced with intense competition from McDonald’s Corp. (NYSE: MCD), The Wendy’s Company (NASDAQ: WEN), Chipotle Mexican Grill Inc. (NYSE: CMG) and Five Guys Burgers and Fries, Burger King has been continually offering new menus and a wider variety of offerings to boost sales.

Guidance for full year FY16

The company did not provide Q4 FY16 or full year FY16 guidance, but analysts’ consensus range for Q4 FY16 EPS is $0.38 to $0.57. The market consensus range for revenue is between $1.1 billion and $1.53 billion, with an average of $1.42 billion for the quarter.

Stock Performance

q7Restaurant Brands’ stock stood at $44.92, gaining 2.09%, at the close on Wednesday, November 16th, 2016, having vacillated between an intraday high of $44.99 and a low of $43.77 during the session. The stock’s trading volume was at 850,321 for the day. The Company’s market cap was at $10.50 billion as of Wednesday’s close.

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