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Restaurant Brands (QSR) Q1 Earnings Miss Estimates, Fall Y/Y

Zacks Equity Research

Restaurant Brands International, Inc. QSR reported first-quarter 2020 results, wherein earnings and revenues missed the Zacks Consensus Estimate. The top and the bottom lines also declined on a year-over-year basis. Following the results, the company’s shares declined nearly 2% on May 1.

The company’s adjusted earnings of 48 cents per share not only missed the Zacks Consensus Estimate of 49 cents but also fell 12.7% year over year. 

Total revenues of $1,225 million missed the consensus mark of $1,228 million by 0.2%. The figure also declined 3.2% from the year-ago quarter on a drop in system-wide sales at Tim Hortons and Burger King segments. This along with a decrease in supply chain sales was partially offset by an increase in system-wide sales at Popeye’s Louisiana Kitchen. Also, unfavorable foreign exchange (FX) movements added to the downside.

However, the company continues to advance its loyalty programs as well as mobile application platforms to enhance consumer experience.

Restaurant Brands International Inc. Price, Consensus and EPS Surprise

Restaurant Brands International Inc. Price, Consensus and EPS Surprise

Restaurant Brands International Inc. price-consensus-eps-surprise-chart | Restaurant Brands International Inc. Quote

Segmental Revenues

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

Revenues at Tim Hortons totaled $699 million compared with $749 million in the prior-year quarter. However, system-wide sales declined 9.9% from the prior-year quarter’s levels. Comps at this segment declined 10.3% compared with 0.6% fall in the prior-year quarter. The decline was primarily due to decrease in system-wide sales, mainly in the month of March, due to the coronavirus outbreak. It was also negatively impacted by FX movements on a reported basis.

Burger King’s revenues totaled $388 million in first-quarter 2020 compared with $411 million in the prior-year quarter. The decline was primarily because of decrease in system-wide sales along with negative FX movements on a GAAP basis. Also, system-wide sales declined 3% from the year-ago quarter’s figure. Comps in this segment also declined 3.7% against 2.2% growth in the prior-year quarter. In the first quarter, net restaurant growth was recorded at 5.8%.

Popeye’s Louisiana Kitchen reported revenues of $138 million compared with $106 million in the year-ago quarter. System-wide sales rose 32.3% from the prior-year quarter’s level owing to net restaurant growth of 6.9% and 26.2% rise in comps. This was led by solid sales of its chicken sandwich. Notably, system-wide sales growth compared favorably with the prior-year quarter’s 6.8% increase.

Operating Performance

In the quarter under review, the company’s adjusted EBITDA declined 11.2% owing to lower sales at Tim Hortons and Burger King, partially offset by an increase in Popeye’s sales. Segment-wise, Tim Horton’s adjusted EBITDA declined 20.1% from the year-ago quarter’s tally. Burger King’s adusted EBITDA increased 10% year over year. However, Popeye’s adjusted EBITDA surged 34.2% from the year-ago quarter’s levels.

Cash and Capital

Restaurant Brands ended the first quarter with cash and cash equivalent balance of $2,498 million. As of Mar 31, 2020, its total debt was $13.4 billion. The company’s board of directors announced a dividend of 52 cents per common share and partnership exchangeable unit of RBI LP for second-quarter 2020. The dividend is payable on Jun 30, to shareholders of record at the close of business as of Jun 17.

Zacks Rank & Key Picks

Restaurant Brands currently carries a Zacks Rank #4 (Sell). 

Some better-ranked stocks in the Retail-Wholesale sector are Sprouts Farmers Market, Inc. SFM, Domino's Pizza, Inc. DPZ and Yum China Holdings, Inc. YUMC. Sprouts Farmers sports a Zacks Rank #1 (Strong Buy), while Domino's and Yum China carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sprouts Farmers has a three-five year earnings per share growth rate of 3.7%.

Domino's has a trailing four-quarter positive earnings surprise of 12.7%, on average. The company’s earnings beat the Zacks Consensus Estimate in the last four quarters.

Earnings in 2021 for Yum China are expected to surge 79.2%.

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