Shares of Florida-based Burger King Worldwide Inc. (BKW) rose more than 2% as the company reported better-than-expected first-quarter results. Investors were particularly encouraged as the company’s profit margins increased mainly on the back of cost-cutting, which masked weak sales in the U.S.
Burger King’s first-quarter 2014 adjusted earnings per share of 20 cents beat the Zacks Consensus Estimate by a penny. Also, earnings increased 19.3% year over year driven by lower operating cost and expenses.
Burger King’s total revenue dropped 26.5% year over year to $240.9 million due to the currency headwinds, adverse impact of refranchising of company-owned restaurants. Quarterly revenues, however, beat the Zacks Consensus Estimate of $240.0 million by 0.4%.
Organically (excluding the impact of refranchising and currency) however, revenues increased 6.2% year over year due to net restaurant growth and comps growth.
Overall comps in the quarter nudged up 2.0%, higher than the prior-quarter comps growth of 1.7%. Comps in the quarter also compared favorably with comps decline of 1.4% in the year-ago quarter as strong international performance made up for weaker comps in the U.S. & Canada due to severe weather.
Burger King witnessed 0.1% comps growth in the U.S. & Canada, down from the prior-quarter comps growth of 0.2%, but considerably better than the year-ago quarter’s decline of 3.0%.
Despite severe winter, the U.S. and Canada delivered slightly positive comps growth in the first quarter primarily on the back of menu innovation. Going forward, the company remains focused on further driving its franchise profitability through ongoing initiatives to simplify its menu and in-restaurant operations.
Comps grew 4.8% in the Europe, the Middle East, and Africa (:EMEA) region, an improvement from prior-quarter level of 3.3% and the year-ago quarter’s level of 0.8%. The upside represented the 13th consecutive quarter of comparable sales growth in the region.
Performance was primarily driven by continued strength in Germany, where premium limited time offerings along with the Trial Weeks value platform boosted sales growth. In the United Kingdom, value menus helped boost traffic. Additionally, the company introduced the low-calorie Satisfries across major European markets, which further boosted sales in the region. EMEA system-wide sales growth of 14.6% was primarily attributable to 340 net new restaurant openings over the last year.
The Latin America and the Caribbean (LAC.TO) region posted positive comps of 4.0% in the quarter, up from 1.8% in the prior quarter and negative comps of 1.3% in the year-ago quarter, gaining from solid traffic growth in Brazil. The company’s limited-time offerings augmented sales in Brazil during the quarter. LAC system-wide sales growth of 17.1% included the positive impact of 156 net new restaurant openings in the past twelve months.
The Asia Pacific (:APAC) region continues to perform well with 3.8% comps growth, higher than the year-ago quarter’s level of 2.7%, but lower than the prior-quarter’s level of 6.2%. The year-over-year comps growth was driven by strong business across Australia and South Korea. China also performed well in the quarter benefiting from the company’s value promotions and menu improvement initiatives. APAC system-wide sales growth of 15.0% was primarily driven by 235 net new restaurant openings over the past twelve months.
Organic adjusted EBITDA grew 12.5% year over year to $159.7 million with solid EBITDA growth across EMEA, LAC as well as APAC region.
Selling, general and administrative expenses declined 27.7% year over year to $48.2 million. Total operating costs and expenses declined 51.4% year over year to $109.6 million.
Performance of other Restaurateurs
Among other restaurateurs, California-based The Cheesecake Factory Inc. (CAKE) posted adjusted earnings of 43 cents per share, which missed the Zacks Consensus Estimate of 49 cents by 12.2%. The downside reflected higher expenses.
Another restaurateur, Brinker International, Inc.’s (EAT) fiscal third-quarter 2014 adjusted earnings of 84 cents per share were in line with the Zacks Consensus Estimate.
Despite posting higher earnings in the quarter, Burger King’s revenues have been soft due to difficult consumer discretionary environment in the U.S. and the the sluggishly recovering economy, which continues to hurt consumers’ discretionary spending.
However, Burger King’s menu improvement initiatives, reimaging efforts and marketing promotions are expected to bode well for future growth. We believe the company safeguards its position and growth prospects amid a sluggish macro-environment through franchising. Additionally, we are encouraged by its cost cutting initiatives which are expected to boost bottom-line growth in the upcoming quarters.
Burger King, currently, carries a Zacks Rank #2 (Buy).
Among other restaurants, The Wendy's Co. (WEN) is scheduled to report its earnings on May 8.
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