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Why Is Restaurant Brands (QSR) Up 0.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Restaurant Brands (QSR - Free Report) . Shares have added about 0.5% 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 Q3 Earnings Match Estimates, Up Y/Y

Restaurant Brands International, reported mixed third-quarter 2019 results, wherein earnings were in line with the Zacks Consensus Estimate but revenues lagged the same.

The company’s adjusted earnings came in at 72 cents per share, which grew 14.3% from the year-ago quarter. This uptick can be primarily attributed to consistent improvement in Restaurant Brands' top line.

Total revenues were $1,458 million, which lagged the consensus mark of $1,462 million. Its top line missed the consensus estimate after beating the same in the preceding three quarters.  However, the metric improved 6% from the year-ago quarter figure, courtesy of increased system-wide sales across its brands.

Notably, Restaurant Brands looks forward to open its first super urban location. It continues making progress on its key investment project that includes remodeling pipelines and construction projects.

Segmental Revenues

Restaurant Brands operates through three segments — Tim Hortons, Burger King and Popeye’s Louisiana Kitchen.

Revenues at Tim Hortons totaled $881 million compared with $854 million in the prior-year quarter. However, system-wide sales declined 1.1% from the prior-year quarter. Comps at this segment decreased 1.4% compared with 0.6% decline in the prior-year quarter. Nonetheless, the brand remains confident of its Winning Together Plan and prospects of the business in Canada appear bright.

Burger King’s revenues grew from $416 million in third-quarter 2018 to $457 million in the quarter under review, mainly driven by increased franchise and property revenues. Also, system-wide sales rose 8.4% from the year-ago quarter. Notably, system-wide sales improvement was 10.7% compared with 7.8% in the prior-year quarter, owing to net restaurant growth of 5.8%. The brand achieved its highest comparable sales growth since 2015 during the quarter, wherein comps grew 4.8% from 1% rise in the prior-year period.

Popeye’s Louisiana Kitchen, which was acquired on Mar 27, 2017, reported revenues of $120 million compared with $105 million in the year-ago quarter. System-wide sales rose 15.4% from the prior-year period, owing to net restaurant growth of 5.6% and 9.7% rise in comps. Notably, system-wide sales growth compared favorably with the prior-year quarter’s 7.9% increase. Popeye’s also reported its strongest comparable sales growth of 9.7% after nearly two decades. This compares favorably with year-ago quarter’s increase of 0.5%.

Operating Performance

In the quarter under review, the company’s adjusted EBITDA rose 5.4% on an organic basis, driven by system-wide sales growth. Segment-wise, Tim Horton’s EBITDA rose 0.7% from the year-ago period. Burger King’s EBITDA also grew 10% year over year. Popeye’s EBITDA was up 12.3% from a year ago.

Cash and Capital

Restaurant Brands ended the third quarter with cash and cash equivalent balance of $1,732 million. As of Sep 30, 2019, its total debt was $12.8 billion. The company’s board of directors declared a dividend of $0.5 per common share for fourth-quarter 2019, payable on Jan 3, 2020 to its shareholders of record at the close of business as of Dec 17, 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Restaurant Brands has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 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, Restaurant Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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