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Why Is Wendy's (WEN) Up 7.1% Since Last Earnings Report?
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A month has gone by since the last earnings report for Wendy's (WEN - Free Report) . Shares have added about 7.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wendy's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Wendy's Q1 Earnings & Revenues Miss Estimates
The Wendy's Company reported first-quarter fiscal 2020 results, wherein earnings and revenues not only missed the Zacks Consensus Estimate but also declined on a year-over-year basis.
Delving Deeper
Adjusted earnings of 9 cents per share lagged the Zacks Consensus Estimate of 10 cents by 10%. The bottom line also plunged 35.7% year over year, primarily due to a decline in adjusted EBITDA.
Quarterly revenues of $405 million missed the consensus mark of $412 million by 1.7%. The top line also declined 1% from the year-ago quarter. The decline was primarily due to lower advertising fund revenues and sales at company-operated restaurants owing to the COVID-19 pandemic.
Meanwhile, comps at International restaurants (excluding Venezuela and Argentina) declined 1.6% against 2.7% growth in the year-ago quarter. Comps at Global restaurants fell 0.2% against 1.4% growth in the prior-year quarter. However, comps in the United States recorded break-even sales compared to 1.2% growth in the prior-year quarter.
System-Wide Sales Discussion
Global system-wide sales — including company-operated and franchise restaurants — were $2.6 million in the reported quarter, up 0.9% from the prior-year quarter’s levels. U.S. system-wide sales were $2.3 million in the quarter, up 1% year over year. However, system-wide sales in the International segment amounted to $0.3 million in the quarter, reflecting no movement from the prior-year quarter level.
Operating Highlights
Company-operated restaurant margin was 10.1% in the reported quarter compared with 15% in the year-ago quarter. The deterioration was mainly due to labor rate inflation, higher maintenance costs, increased commodity costs and breakfast training expenses.
General and administrative expenses in the quarter totaled $51.6 million, up 4.7% from $49.3 million recorded in the prior-year quarter. The increase was primarily due to higher salaries and benefits, increase in severance costs, and meeting cancellation expenses due to the COVID-19 outbreak. However, the costs were partially offset by a lower incentive compensation accrual.
Quarterly operating profit amounted to $48.7 million, down 26.5% from the year-ago quarter’s reported figure. Also, net income of $14.4 million plummeted 54.9% from $31.9 million in the year-ago quarter. The decline was primarily because of higher effective tax rate, unfavorable adjustment related to foreign tax credits and a reduction in the net excess tax benefits related to share-based compensation.
Adjusted EBITDA declined 12.2% from the prior-year quarter’s figure, given a decrease in company-operated restaurant margin and rise in general and administrative expenses. Notably, adjusted EBITDA margin declined 280 basis points to 22.1%.
Balance Sheet
Cash and cash equivalents as of Mar 29, 2020, were $294.9 million compared with $300.2 million as on Dec 29, 2019.
However, to ensure financial stability during the global pandemic, the company suspended all share repurchase activity. The company will reduce capital expenditure and non-people related general & administrative expenses in 2020, which will result in savings of $30 million. As of May 3, 2020, the company’s cash balance stands at nearly $365 million.
Inventories at the end of the first quarter amounted to $4.6 million, up from $3.9 million at 2019-end. Long-term debt was $2,244.9 million as of Mar 29, 2020, compared with $2,257.6 million as on Dec 29, 2019.
Owing to the business disruption and impact of the COVID-19 pandemic, the company has lowered its dividend for second-quarter 2020 to 5 cents per share, payable on Jun 15, 2020, to shareholders of record as of Jun 1, 2020. The number of common shares outstanding as of Apr 29, 2020, was 222.7 million.
Other Developments
In the quarter under review, Wendy’s had 41 global restaurant openings with an increase of 17 net new units. Image Activation, which is an integral part of the company’s global growth strategy, includes reimaging of existing restaurants and building new ones. At the end of the fiscal first quarter, 60% of the global system was image-activated.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 175% due to these changes.
VGM Scores
At this time, Wendy's has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Wendy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Wendy's (WEN) Up 7.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Wendy's (WEN - Free Report) . Shares have added about 7.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wendy's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Wendy's Q1 Earnings & Revenues Miss Estimates
The Wendy's Company reported first-quarter fiscal 2020 results, wherein earnings and revenues not only missed the Zacks Consensus Estimate but also declined on a year-over-year basis.
Delving Deeper
Adjusted earnings of 9 cents per share lagged the Zacks Consensus Estimate of 10 cents by 10%. The bottom line also plunged 35.7% year over year, primarily due to a decline in adjusted EBITDA.
Quarterly revenues of $405 million missed the consensus mark of $412 million by 1.7%. The top line also declined 1% from the year-ago quarter. The decline was primarily due to lower advertising fund revenues and sales at company-operated restaurants owing to the COVID-19 pandemic.
Meanwhile, comps at International restaurants (excluding Venezuela and Argentina) declined 1.6% against 2.7% growth in the year-ago quarter. Comps at Global restaurants fell 0.2% against 1.4% growth in the prior-year quarter. However, comps in the United States recorded break-even sales compared to 1.2% growth in the prior-year quarter.
System-Wide Sales Discussion
Global system-wide sales — including company-operated and franchise restaurants — were $2.6 million in the reported quarter, up 0.9% from the prior-year quarter’s levels. U.S. system-wide sales were $2.3 million in the quarter, up 1% year over year. However, system-wide sales in the International segment amounted to $0.3 million in the quarter, reflecting no movement from the prior-year quarter level.
Operating Highlights
Company-operated restaurant margin was 10.1% in the reported quarter compared with 15% in the year-ago quarter. The deterioration was mainly due to labor rate inflation, higher maintenance costs, increased commodity costs and breakfast training expenses.
General and administrative expenses in the quarter totaled $51.6 million, up 4.7% from $49.3 million recorded in the prior-year quarter. The increase was primarily due to higher salaries and benefits, increase in severance costs, and meeting cancellation expenses due to the COVID-19 outbreak. However, the costs were partially offset by a lower incentive compensation accrual.
Quarterly operating profit amounted to $48.7 million, down 26.5% from the year-ago quarter’s reported figure. Also, net income of $14.4 million plummeted 54.9% from $31.9 million in the year-ago quarter. The decline was primarily because of higher effective tax rate, unfavorable adjustment related to foreign tax credits and a reduction in the net excess tax benefits related to share-based compensation.
Adjusted EBITDA declined 12.2% from the prior-year quarter’s figure, given a decrease in company-operated restaurant margin and rise in general and administrative expenses. Notably, adjusted EBITDA margin declined 280 basis points to 22.1%.
Balance Sheet
Cash and cash equivalents as of Mar 29, 2020, were $294.9 million compared with $300.2 million as on Dec 29, 2019.
However, to ensure financial stability during the global pandemic, the company suspended all share repurchase activity. The company will reduce capital expenditure and non-people related general & administrative expenses in 2020, which will result in savings of $30 million. As of May 3, 2020, the company’s cash balance stands at nearly $365 million.
Inventories at the end of the first quarter amounted to $4.6 million, up from $3.9 million at 2019-end. Long-term debt was $2,244.9 million as of Mar 29, 2020, compared with $2,257.6 million as on Dec 29, 2019.
Owing to the business disruption and impact of the COVID-19 pandemic, the company has lowered its dividend for second-quarter 2020 to 5 cents per share, payable on Jun 15, 2020, to shareholders of record as of Jun 1, 2020. The number of common shares outstanding as of Apr 29, 2020, was 222.7 million.
Other Developments
In the quarter under review, Wendy’s had 41 global restaurant openings with an increase of 17 net new units. Image Activation, which is an integral part of the company’s global growth strategy, includes reimaging of existing restaurants and building new ones. At the end of the fiscal first quarter, 60% of the global system was image-activated.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 175% due to these changes.
VGM Scores
At this time, Wendy's has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Wendy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.