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Burger King's Earnings In Line, Revs Beat

Zacks Equity Research

Burger King’s (BKW) first-quarter adjusted earnings per share of 17 cents were in line with the Zacks Consensus Estimate but soared 49% year over year. Increased adjusted EBITDA, lower depreciation, amortization costs as well as interest expense led to the growth.

Burger King’s total revenue plunged 42.5% year over year to $327.7 million due to the adverse impact of refranchising and comparable sales decline. However, the reported revenues beat the Zacks Consensus Estimate of $300 million. Organically, revenues dipped 2.0% in the quarter hurt by a decline in comps in the U.S. and Canada and Latin America and the Caribbean (:LAC) region.

Comparable sales in the quarter fell 1.4%, reflecting tough year-over-year comparison and negative comps in the U.S. & Canada (3.0%) and LAC (1.3%). However, comps grew 0.8% in Europe, the Middle East, and Africa (:EMEA) and 2.7% in Asia-Pacific (:APAC).

An anemic macroeconomic environment and stiff competition led to the decline in U.S. and Canada comps. However, Burger King remains steadfast in executing its Four Pillars strategy in this region that includes menu improvements, marketing initiatives, operational efficiency and re-imaging in the U.S. and Canada.

Continued success of “King of the Day” promotions in the UK, stronger performance in the Russian market and the success of Steakhouse Gold premium burgers along with the “Trial Weeks” value promotion in Germany facilitated comps growth in the EMEA region. Although business in Spain was sluggish owing to ongoing economic crisis in southern Europe, a sequential improvement was noticed attributable to some value products and deals.

Poor performance in Mexico and Puerto Rico marred the LAC region comps. However, positive results in Brazil, Argentina, and Venezuela contained the downfall in comps to some extent.

Better results in Australia owing to successful value promotions such as “Shake and Win” and “Penny Pinchers” and the acceptance of the new value program in Korea benefited APAC results. However, Japan and New Zealand were the laggards in the segment.  

The Miami-based company also stated that organic adjusted EBITDA grew 4.5% driven by net restaurant growth and cost containment initiatives.


During the first quarter of 2013, Burger King completed refranchising in the US. It also completed its refranchising initiatives in Canada and Mexico in April. Burger King seeks to finish its refranchising initiative in 2013.

Store Count

Management expects to see slight acceleration in net restaurant growth in the second quarter of 2013, which will further gain momentum in the latter half of the year.


Burger King seeks to re-image at least 40% of its restaurants by 2015. In 2012, Burger King completed around 600 re-images, thus refurbishing 19% of the system. So far re-imaged restaurants have delivered an average sales lift of 10% to 15%, thus providing an attractive return to franchisees.

Burger King currently carries a Zacks Rank #2 (Buy). One of its peers, McDonald’s Corporation (MCD) missed on both lines while two other restaurateurs Yum! Brands Inc. (YUM) and Brinker International Inc. (EAT) beat earnings and missed revenues in the quarter.

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