Burger King's Bottom Line Rises

Burger King Holdings Inc. (BKC) recently reported fourth quarter 2009 financial results with a low single-digit decline in its top-line, but a surprise double-digit growth in the bottom-line. Lower total operating expenses (down 4%), a fall in interest expense (down 9%), and lower effective tax rate (21.6% for the quarter under review versus 26.7% in the prior year quarter) drove the rise in the bottom line.

Burger King’s quarterly earnings of 43 cents a share surpassed the Zacks Consensus Estimate of 33 cents, and climbed 16% year over year from 37 cents delivered in the prior-year quarter.

BKC’s total revenue dipped by 2% to $629.9 million, primarily due to unfavorable exchange rates and fall in comparable sales. Company restaurant revenue slid 2% to $461.6 million, franchise revenue fell 3% to $138.9 million, whereas property revenue declined 7% to $29.4 million. By geographic segments, revenue was – U.S. & Canada up 3% to $436.1 million, EMEA/APAC down 12% to $169.3 million and Latin America fell 22% to $24.5 million.

Burger King is facing the brunt of the turbulent economy plagued by rising unemployment. The consumers with lower disposable income are dining at home or at restaurant chains offering discounts, which is adversely affecting the comparable sales. Management expects comps to remain soft in the first half of the fiscal year 2010 with some improvement expected in the second half.

Burger King in the Quick Service Segment competes with McDonald’s Corporation (MCD - Analyst Report), Yum! Brands Inc. (YUM - Analyst Report), Krispy Kreme Doughnuts (KKD - Snapshot Report), Papa John's International (PZZA - Snapshot Report) and Chipotle Mexican Grill (CMG - Analyst Report).

Comparable sales for the quarter slid 2.4% in the quarter after increasing 1% in the third quarter of 2009, revealing the impact of a deepening recession. In the year ago quarter, Burger King reported positive comps of 5.3%. By geographic segment, comps were: US & Canada down 4.5%, EMEA/APAC up 2.5% and Latin America down 3%.

Total company restaurant margins shrank 60 basis points to 12.5%, driven by significant decline in traffic counts and rise in labor costs in the US & Canada and EMEA.

During the quarter, 115 net new restaurants were opened, bringing the total restaurant openings to 360 in the fiscal year 2009. However, out of these restaurants over 90% were opened outside the US & Canada . Similarly, in fiscal year 2010 management expects to open 80% to 90% new restaurants.

Due to the ongoing economic turmoil, management now expects to open 250 to 300 restaurants in fiscal year 2010 and expects capital expenditures in the range of $175 million to $200 million. For fiscal year 2009, capital expenditures were $204 million.

At the end of fiscal year 2009, the company had total cash of $121.7 million and total debt of $888.9 million. The company reduced its total debt by $58.5 million during the year, and expects to pay down $62.5 million in the fiscal year 2010. During the year, Burger repaid approximately $54.4 million to shareholders through share repurchases ($20.3 million) and dividends ($34.1 million).

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