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Why Is Wendy's (WEN) Up 5.2% Since the Last Earnings Report?
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About a month has gone by since the last earnings report for The Wendy's Company (WEN - Free Report) . Shares have added about 5.2% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted 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 Q3 Earnings & Revenues Miss Estimates
Wendy’s posted lower-than-expected third-quarter 2017 results with both revenues and earnings missing the Zacks Consensus Estimate.
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.
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.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
At this time, Wendy's stock has a poor Growth Score of F, though it is doing a lot better on the momentum front with a C. 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.
Our style scores indicate that the stock is solely suitable for momentum investors.
Outlook
The stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.
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Why Is Wendy's (WEN) Up 5.2% Since the Last Earnings Report?
About a month has gone by since the last earnings report for The Wendy's Company (WEN - Free Report) . Shares have added about 5.2% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted 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 Q3 Earnings & Revenues Miss Estimates
Wendy’s posted lower-than-expected third-quarter 2017 results with both revenues and earnings missing the Zacks Consensus Estimate.
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.
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.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last month as none of them issued any earnings estimate revisions.
The Wendy's Company Price and Consensus
The Wendy's Company Price and Consensus | The Wendy's Company Quote
VGM Scores
At this time, Wendy's stock has a poor Growth Score of F, though it is doing a lot better on the momentum front with a C. 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.
Our style scores indicate that the stock is solely suitable for momentum investors.
Outlook
The stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.