A month has gone by since the last earnings report for Restaurant Brands (QSR - Free Report) . Shares have added about 1.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Restaurant Brands 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.
Restaurant Brands Q2 Earnings Beat Estimates, Fall Y/Y
Restaurant Brands reported second-quarter 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate. However, the top and the bottom line declined on a year-over-year basis.
The company’s adjusted earnings of 33 cents per share beat the Zacks Consensus Estimate of 29 cents by 13.8%. However, the bottom line fell 53.5% from the prior-year quarter’s figure of 71 cents.
Quarterly revenues of $1,048 million surpassed the consensus mark of $1,019 million by 2.8%. However, the top line declined 25.1% on a year-over-year basis, primarily due to a drop in system-wide sales at Tim Hortons and Burger King segments. This along with a decrease in supply chain sales was partially offset by an increase in system-wide sales at Popeye’s Louisiana Kitchen. Also, unfavorable foreign exchange (FX) movements added to the downside. Following the results, the company’s shares declined 4.4% during trading hours on Aug 6.
Restaurant Brands operates through three segments — Tim Hortons, Burger King and Popeye’s Louisiana Kitchen.
During the second quarter, revenues at Tim Hortons totaled $567 million compared with $842 million in the prior-year quarter. System-wide sales declined 33.4% against 1.6% growth in the prior-year quarter. Comps at this segment declined 29.3% against 0.5% growth in the prior-year quarter. The decline was primarily led by a decrease in system-wide sales. It was also negatively impacted by FX movements on a reported basis. In the second quarter, net restaurant growth was recorded at 1.3% compared with 1.6% in the prior-year quarter.
Burger King’s revenues totaled $347 million in second-quarter 2020, compared with $447 million in the prior-year quarter. The decline was primarily because of decrease in system-wide sales along with negative FX movements on a GAAP basis. Also, system-wide sales declined 25.2% against 9.8% growth in the prior-year quarter. Comps in this segment also declined 13.4% against 3.6% growth in the prior-year quarter. In the second quarter, net restaurant growth was recorded at 4.2% compared with 5.8% in the prior-year quarter.
Popeye’s Louisiana Kitchen reported revenues of $134 million in the second quarter of 2020, compared with $111 million in the prior-year quarter. System-wide sales rose 24% from the prior-year quarter’s level owing to net restaurant growth of 6.7% and 24.8% rise in comps. Notably, system-wide sales grew 24% compared with the prior-year quarter’s 8.8% increase.
In the quarter under review, the company’s adjusted EBITDA declined 38.3% year over year to $358 million primarily due to lower sales at Tim Hortons and Burger King, partially offset by an increase in Popeye’s sales. Segment-wise, Tim Horton’s adjusted EBITDA declined 48.9% from the year-ago quarter’s tally. Burger King’s adjusted EBITDA decreased 36.7% year over year. However, Popeye’s adjusted EBITDA surged 23.9% from the year-ago quarter.
Cash and Capital
Restaurant Brands ended the second quarter with cash and cash equivalent balance of $1,540 million. As of Jun 30, 2020, its total debt was $12.9 billion compared with $12.2 billion as on Jun 30, 2019. The company’s board of directors announced a dividend of 52 cents per common share and partnership exchangeable unit of RBI LP for third-quarter 2020. The dividend is payable on Oct 2, to shareholders of record at the close of business as of Sep 18, 2020.
During second-quarter 2020, digital sales across brands grew over 120% year over year and more than 30% quarter over quarter.
The company reopened 4500 stores during the quarter, resulting in the operation of 93% of its restaurants globally. Nonetheless, it continues to focus on its pipeline to deliver solid net restaurant growth in 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Restaurant Brands has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Restaurant Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.