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Wendy's (WEN) Up 8.9% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Wendy's (WEN - Free Report) . Shares have added about 8.9% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Wendy's Q2 Earnings Beat Estimates, Revenues Miss
Wendy's reported mixed second-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The top line rose year over year, while the bottom line declined on a year-over-year basis.
Q2 Earnings & Revenues
During the fiscal second quarter, the company reported adjusted earnings of 24 cents per share. The bottom line beat the Zacks Consensus Estimate of 22 cents. However, the bottom line fell 11.1% year over year from adjusted earnings per share (EPS) of 27 cents reported in the prior-year quarter.
Quarterly revenues of $537.8 million fell short of the consensus mark of $541 million. However, the top line increased 9% on a year-over-year basis. The upside was primarily driven by higher sales at company-operated restaurants (which benefited from the acquisition of 93 franchise-operated restaurants in Florida in fourth-quarter 2021) and higher same-restaurant sales. Also, a rise in franchise royalty revenue and advertising funds revenue added to the upside.
During the quarter under review, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) rose 15.2% year over year compared with growth of 31.4% in the year-ago quarter. Comps at Global restaurants rose 3.7% year over year compared with a 17.4% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 2.3% year over year compared with an increase of 16.1% in the prior-year quarter.
In the quarter under review, Wendy’s inaugurated 47 restaurants globally, reflecting an increase of 24 net new units.
System-Wide Sales Discussion
During the fiscal second quarter, global system-wide sales — including company-operated and franchise restaurants — were nearly $3.4 million, up 5.2% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were approximately $3 million and $0.4 million, up 3.6% and 18.4% year over year, respectively.
Operating Highlights
During the fiscal second quarter, the company-operated restaurant margin came in at 14.5%, compared with 20.3% in the year-ago quarter. The downside was primarily due to higher commodity and labor costs, a decline in customer counts and increased investments (to support the entry into the United Kingdom market). However, this was partially offset by a higher average check. General and administrative expenses in the quarter were $61.6 million compared with $63.1 million reported in the prior-year quarter. This was primarily on account of a lower incentive compensation accrual.
Quarterly operating profit amounted to $96.3 million, down 24% from the year-ago quarter. The decline was primarily due to lower system optimization gains (driven by lapping the sale of the New York market in the prior year quarter) and a decrease in company-operated restaurant margin. However, this was partially offset by a rise in franchise royalty revenue.
Net income during the fiscal second quarter was $48.2 million, down 26.7% from $65.7 million reported in the year-ago quarter. The downside was primarily due to a decrease in operating profit and higher interest expense (owing to the company's debt raise in the first quarter of fiscal 2022).
Adjusted EBITDA during the quarter totaled $132.9 million, up 1.4% from $131.1 million reported in the prior-year quarter. The upside was primarily backed by higher franchise royalty revenue and lower general and administrative expenses. However, this was partially offset by a decline in company-operated restaurant margin.
Balance Sheet
Cash and cash equivalents as of Jul 3, 2022, totaled $700.8 million compared with $741.2 million on Apr 3, 2022. Inventories at the end of the fiscal second quarter amounted to $6.5 million compared with $5.9 million reported in the previous quarter. As of Jul 3, 2022, long-term debt was $2,832.8 million compared with $2,836.8 million at the end of Apr 3, 2022.
The company declared a quarterly dividend of 12.5 cents per share. The dividend will be paid out on Sep 15, 2022, to shareholders on record as of Sep 1, 2022. In the fiscal second quarter, the company repurchased 2.8 million shares.
2022 Outlook
For 2022, the company continues to expect global system-wide sales growth to be 6-8%. Adjusted EBITDA is projected in the band of $490-$505 million. Adjusted EPS for 2022 is anticipated to be 84-88 cents, up from the prior estimate of 82-96 cents. The Zacks Consensus Estimate for 2022 earnings is pegged at 82 cents. The company anticipates cash flow from operations in the band of $305-$325 million, while capital expenditures are projected between $90 million and $100 million. Free cash flow is anticipated to be $215-$225 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -7.17% due to these changes.
VGM Scores
At this time, Wendy's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wendy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Wendy's is part of the Zacks Retail - Restaurants industry. Over the past month, Yum Brands (YUM - Free Report) , a stock from the same industry, has gained 4.6%. The company reported its results for the quarter ended September 2022 more than a month ago.
Yum reported revenues of $1.64 billion in the last reported quarter, representing a year-over-year change of +2.1%. EPS of $1.09 for the same period compares with $1.22 a year ago.
For the current quarter, Yum is expected to post earnings of $1.21 per share, indicating a change of +18.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.7% over the last 30 days.
Yum has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Wendy's (WEN) Up 8.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Wendy's (WEN - Free Report) . Shares have added about 8.9% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Wendy's Q2 Earnings Beat Estimates, Revenues Miss
Wendy's reported mixed second-quarter fiscal 2022 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. The top line rose year over year, while the bottom line declined on a year-over-year basis.
Q2 Earnings & Revenues
During the fiscal second quarter, the company reported adjusted earnings of 24 cents per share. The bottom line beat the Zacks Consensus Estimate of 22 cents. However, the bottom line fell 11.1% year over year from adjusted earnings per share (EPS) of 27 cents reported in the prior-year quarter.
Quarterly revenues of $537.8 million fell short of the consensus mark of $541 million. However, the top line increased 9% on a year-over-year basis. The upside was primarily driven by higher sales at company-operated restaurants (which benefited from the acquisition of 93 franchise-operated restaurants in Florida in fourth-quarter 2021) and higher same-restaurant sales. Also, a rise in franchise royalty revenue and advertising funds revenue added to the upside.
During the quarter under review, same-restaurant sales at International restaurants (excluding Venezuela and Argentina) rose 15.2% year over year compared with growth of 31.4% in the year-ago quarter. Comps at Global restaurants rose 3.7% year over year compared with a 17.4% increase reported in the prior-year quarter. Comps in the United States witnessed an improvement of 2.3% year over year compared with an increase of 16.1% in the prior-year quarter.
In the quarter under review, Wendy’s inaugurated 47 restaurants globally, reflecting an increase of 24 net new units.
System-Wide Sales Discussion
During the fiscal second quarter, global system-wide sales — including company-operated and franchise restaurants — were nearly $3.4 million, up 5.2% year over year. During the quarter under review, system-wide sales in the U.S. and the International segments were approximately $3 million and $0.4 million, up 3.6% and 18.4% year over year, respectively.
Operating Highlights
During the fiscal second quarter, the company-operated restaurant margin came in at 14.5%, compared with 20.3% in the year-ago quarter. The downside was primarily due to higher commodity and labor costs, a decline in customer counts and increased investments (to support the entry into the United Kingdom market). However, this was partially offset by a higher average check.
General and administrative expenses in the quarter were $61.6 million compared with $63.1 million reported in the prior-year quarter. This was primarily on account of a lower incentive compensation accrual.
Quarterly operating profit amounted to $96.3 million, down 24% from the year-ago quarter. The decline was primarily due to lower system optimization gains (driven by lapping the sale of the New York market in the prior year quarter) and a decrease in company-operated restaurant margin. However, this was partially offset by a rise in franchise royalty revenue.
Net income during the fiscal second quarter was $48.2 million, down 26.7% from $65.7 million reported in the year-ago quarter. The downside was primarily due to a decrease in operating profit and higher interest expense (owing to the company's debt raise in the first quarter of fiscal 2022).
Adjusted EBITDA during the quarter totaled $132.9 million, up 1.4% from $131.1 million reported in the prior-year quarter. The upside was primarily backed by higher franchise royalty revenue and lower general and administrative expenses. However, this was partially offset by a decline in company-operated restaurant margin.
Balance Sheet
Cash and cash equivalents as of Jul 3, 2022, totaled $700.8 million compared with $741.2 million on Apr 3, 2022. Inventories at the end of the fiscal second quarter amounted to $6.5 million compared with $5.9 million reported in the previous quarter. As of Jul 3, 2022, long-term debt was $2,832.8 million compared with $2,836.8 million at the end of Apr 3, 2022.
The company declared a quarterly dividend of 12.5 cents per share. The dividend will be paid out on Sep 15, 2022, to shareholders on record as of Sep 1, 2022. In the fiscal second quarter, the company repurchased 2.8 million shares.
2022 Outlook
For 2022, the company continues to expect global system-wide sales growth to be 6-8%. Adjusted EBITDA is projected in the band of $490-$505 million. Adjusted EPS for 2022 is anticipated to be 84-88 cents, up from the prior estimate of 82-96 cents. The Zacks Consensus Estimate for 2022 earnings is pegged at 82 cents. The company anticipates cash flow from operations in the band of $305-$325 million, while capital expenditures are projected between $90 million and $100 million. Free cash flow is anticipated to be $215-$225 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -7.17% due to these changes.
VGM Scores
At this time, Wendy's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wendy's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Wendy's is part of the Zacks Retail - Restaurants industry. Over the past month, Yum Brands (YUM - Free Report) , a stock from the same industry, has gained 4.6%. The company reported its results for the quarter ended September 2022 more than a month ago.
Yum reported revenues of $1.64 billion in the last reported quarter, representing a year-over-year change of +2.1%. EPS of $1.09 for the same period compares with $1.22 a year ago.
For the current quarter, Yum is expected to post earnings of $1.21 per share, indicating a change of +18.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.7% over the last 30 days.
Yum has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.