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Restaurant Brands (QSR) Up 7.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Restaurant Brands (QSR). Shares have added about 7.8% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Restaurant Brands Q2 Earnings Beat Estimates, Up Y/Y

Restaurant Brands International reported better-than-expected second-quarter 2019 results. Also, its top and bottom lines gained on a year-over-year basis.

The company’s adjusted earnings of 71 cents per share surpassed the Zacks Consensus Estimate of 67 cents and grew 7.6% from the year-ago quarter number. This uptick can be primarily attributed to consistent improvement in Restaurant Brands' top line.

Total revenues were $1,400 million, which outpaced the consensus mark of $1,385 million. The metric also improved 4.2% from the year-ago quarter figure, courtesy of increased system-wide sales across the company’s brands.

Segmental Revenues

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

Revenues at Tim Hortons totaled $842 million compared with $823 million in the prior-year quarter. Also, system-wide sales rose 1.6% on net restaurant growth. Meanwhile, comps at this segment improved0.5% compared with flat comps in the prior-year quarter.

Burger King’s revenues grew from $418 million in second-quarter 2018 to $447 million in the quarter under review, mainly driven by increased franchise and property revenues. Also, system-wide sales rose 9.8%, wider than 8.4% growth registered in the year-ago comparable period. System-wide sales growth can be attributed to net restaurant growth of 5.8% and positive comps growth. Comps grew 3.6% compared with 1.8% rise in the prior-year quarter.

Popeye’s Louisiana Kitchen, which was acquired on Mar 27, 2017, reported revenues of $111 million compared with $102 million in the year-ago quarter.System-wide sales rose 8.8%, owing to net restaurant growth of 6.1% and 3% rise in comps. Notably, system-wide sales growth compared unfavorably with the prior-year quarter’s 10.7% increase. Comparable sales grew 3%, comparing favorably with year-ago quarter’s increase of 2.9%.
Operating Performance

In the quarter under review, the company’s adjusted EBITDA rose 6.3% on an organic basis, driven by system-wide sales growth. Segment-wise, Tim Horton’s EBITDA rose 3.5%. Burger King’s EBITDA grew 10% year over year. Popeye’s EBITDA was up 4.6%.

Cash and Capital

Restaurant Brands exited the second quarter with cash and cash equivalent balance of $1,028 million. As of Jun 30, 2019, total debt was $12.3 billion. The company’s board of directors declared a dividend payout of 50 cents per share for the third quarter of 2019, payable Oct 3 to its shareholders of record at the close of business as of Sep 17.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Restaurant Brands has an average Growth Score of C, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. 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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