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Wendy's (WEN) Stock Falls on Q3 Earnings & Revenue Miss
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Shares of The Wendy’s Company (WEN - Free Report) were down 1.6% in yesterday’s trading session after the company posted lower-than-expected third-quarter 2017 results.
Earnings and Revenue Discussion
Adjusted earnings came in at 9 cents, missing the Zacks Consensus Estimate of 12 cents by 25%. The bottom line also declined 18.2% year over year on the back of lower revenues.
Total revenues of $308 million slightly lagged the consensus mark of $308.6 million and decreased 15.4% year over year. The decline reflects a reduction in the number of company-operated restaurants as a result of its system optimization initiative. It owned 249 fewer company-operated restaurants in the third quarter compared with the year-ago quarter. The decline was partly offset by higher franchise royalty revenue and fees and franchise rental income.
Comps at North America system restaurants were up 2%, lower than an increase of 3.2% in the previous quarter but higher than a 1.4% growth in third-quarter 2016.
Wendy's Company (The) Price, Consensus and EPS Surprise
North America company-operated restaurant margin decreased 170 basis points (bps) to 16.7% primarily due to higher commodity costs.
General and administrative (G&A) expenses declined 10.1% year over year owing to cost savings related to the company's system optimization initiative as well as lower professional fees.
Adjusted EBITDA decreased 3.3% year over year primarily due to lower franchise fees (as a result of system optimization and Buy and Flip transactions) as well as a year-over-year decline in company-operated restaurant margin, partially offset by G&A savings. Nevertheless, adjusted EBITDA margin improved 400 bps to 31.5% on the back of positive impact of Wendy's system optimization initiative.
Image Activation
Image Activation remains an integral part of the company’s global growth strategy, and includes reimaging existing restaurants and building new restaurants.
At the end of the third quarter, approximately 39% of the global system featured the brand’s new image. Meanwhile, Wendy’s and its franchisees continue to expect roughly 42% of the global system, image activated, by the end of 2017.
Additionally, the company stated that it expects net new unit growth in 2017 to be in the 0.5-1% range in North America compared with a 1% growth, projected earlier. Internationally, the number of new units continues to be expected to increase 14%.
Going forward, Wendy's plans to continue facilitating franchisee-to-franchisee restaurant transfers through its Buy and Flip strategy for ensuring that restaurants are operated by well-capitalized franchisees who are committed to long-term growth.
During the third quarter, Wendy’s did not facilitate any Buy and Flips but expects to complete approximately 500 to 550 transactions in 2017, up from its previous expectation of 475.
2017 Guidance Lowered
For 2017, the company now expects adjusted earnings per share in the range of 43 cents to 45 cents (previously 45 to 47 cents), up approximately 7.5% to 12.5% from 2016 levels. The Zacks Consensus Estimate of 46 cents is pegged higher than the guided range.
Furthermore, Wendy’s anticipates comps growth of approximately 2% to 2.5% for the North America system compared with the previous expectation of 2% to 3%.
Adjusted EBITDA continues to be projected in the range of $404 to $410 million, reflecting an increase of 3% to 5% compared with 2016 levels.
Also, restaurant margin is expected to be in the band of 17.5% to 18% compared with previous projection of 18-18.5%.
Capital expenditures are anticipated to be between $80 million and $85 million (previously $80-90 million).
Long-Term Outlook Reaffirmed
The company continues to anticipate record global restaurant sales (in constant currency and excluding Venezuela) of $12 billion by 2020. Also, it expects to reach global restaurant count of 7,500 and intends to complete Image Activation of at least 70% of the global system. Notably, Wendy’s aims to realize free cash flow of approximately $275 million by 2020.
Moreover, it looks forward toward achieving adjusted EBITDA margin in the range of 38-40% by the end of 2020.
McDonald's Corp. (MCD - Free Report) reported third-quarter adjusted earnings per share of $1.76, beating the Zacks Consensus Estimate of $1.75 by 0.6%. Earnings also increased 8.6% year over year.
Buffalo Wild Wings, Inc.’s third-quarter 2017 adjusted earnings were $1.36 per share, which outpaced the Zacks Consensus Estimate of 78 cents by 74.4%. Also, the bottom line compared favorably with the year-ago quarter figure of $1.23 per share by 10.6%.
In third-quarter 2017, Domino’s Pizza, Inc. (DPZ - Free Report) posted earnings of $1.27 per share that outpaced the Zacks Consensus Estimate of $1.22 by 4.1%. Further, earnings improved 32.3% year over year.
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Wendy's (WEN) Stock Falls on Q3 Earnings & Revenue Miss
Shares of The Wendy’s Company (WEN - Free Report) were down 1.6% in yesterday’s trading session after the company posted lower-than-expected third-quarter 2017 results.
Earnings and Revenue Discussion
Adjusted earnings came in at 9 cents, missing the Zacks Consensus Estimate of 12 cents by 25%. The bottom line also declined 18.2% year over year on the back of lower revenues.
Total revenues of $308 million slightly lagged the consensus mark of $308.6 million and decreased 15.4% year over year. The decline reflects a reduction in the number of company-operated restaurants as a result of its system optimization initiative. It owned 249 fewer company-operated restaurants in the third quarter compared with the year-ago quarter. The decline was partly offset by higher franchise royalty revenue and fees and franchise rental income.
Comps at North America system restaurants were up 2%, lower than an increase of 3.2% in the previous quarter but higher than a 1.4% growth in third-quarter 2016.
Wendy's Company (The) Price, Consensus and EPS Surprise
Wendy's Company (The) Price, Consensus and EPS Surprise | Wendy's Company (The) Quote
Profit Discussion
North America company-operated restaurant margin decreased 170 basis points (bps) to 16.7% primarily due to higher commodity costs.
General and administrative (G&A) expenses declined 10.1% year over year owing to cost savings related to the company's system optimization initiative as well as lower professional fees.
Adjusted EBITDA decreased 3.3% year over year primarily due to lower franchise fees (as a result of system optimization and Buy and Flip transactions) as well as a year-over-year decline in company-operated restaurant margin, partially offset by G&A savings.
Nevertheless, adjusted EBITDA margin improved 400 bps to 31.5% on the back of positive impact of Wendy's system optimization initiative.
Image Activation
Image Activation remains an integral part of the company’s global growth strategy, and includes reimaging existing restaurants and building new restaurants.
At the end of the third quarter, approximately 39% of the global system featured the brand’s new image. Meanwhile, Wendy’s and its franchisees continue to expect roughly 42% of the global system, image activated, by the end of 2017.
Additionally, the company stated that it expects net new unit growth in 2017 to be in the 0.5-1% range in North America compared with a 1% growth, projected earlier. Internationally, the number of new units continues to be expected to increase 14%.
Going forward, Wendy's plans to continue facilitating franchisee-to-franchisee restaurant transfers through its Buy and Flip strategy for ensuring that restaurants are operated by well-capitalized franchisees who are committed to long-term growth.
During the third quarter, Wendy’s did not facilitate any Buy and Flips but expects to complete approximately 500 to 550 transactions in 2017, up from its previous expectation of 475.
2017 Guidance Lowered
For 2017, the company now expects adjusted earnings per share in the range of 43 cents to 45 cents (previously 45 to 47 cents), up approximately 7.5% to 12.5% from 2016 levels. The Zacks Consensus Estimate of 46 cents is pegged higher than the guided range.
Furthermore, Wendy’s anticipates comps growth of approximately 2% to 2.5% for the North America system compared with the previous expectation of 2% to 3%.
Adjusted EBITDA continues to be projected in the range of $404 to $410 million, reflecting an increase of 3% to 5% compared with 2016 levels.
Also, restaurant margin is expected to be in the band of 17.5% to 18% compared with previous projection of 18-18.5%.
Capital expenditures are anticipated to be between $80 million and $85 million (previously $80-90 million).
Long-Term Outlook Reaffirmed
The company continues to anticipate record global restaurant sales (in constant currency and excluding Venezuela) of $12 billion by 2020. Also, it expects to reach global restaurant count of 7,500 and intends to complete Image Activation of at least 70% of the global system. Notably, Wendy’s aims to realize free cash flow of approximately $275 million by 2020.
Moreover, it looks forward toward achieving adjusted EBITDA margin in the range of 38-40% by the end of 2020.
Zacks Rank & Peer Releases
Wendy’s has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
McDonald's Corp. (MCD - Free Report) reported third-quarter adjusted earnings per share of $1.76, beating the Zacks Consensus Estimate of $1.75 by 0.6%. Earnings also increased 8.6% year over year.
Buffalo Wild Wings, Inc.’s third-quarter 2017 adjusted earnings were $1.36 per share, which outpaced the Zacks Consensus Estimate of 78 cents by 74.4%. Also, the bottom line compared favorably with the year-ago quarter figure of $1.23 per share by 10.6%.
In third-quarter 2017, Domino’s Pizza, Inc. (DPZ - Free Report) posted earnings of $1.27 per share that outpaced the Zacks Consensus Estimate of $1.22 by 4.1%. Further, earnings improved 32.3% year over year.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>