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Wendy's (WEN) Earnings and Revenues Surpass Estimates in Q1

Zacks Equity Research

The Wendy's Company WEN reported better-than-expected results for the first quarter of 2019. This marked the third consecutive earnings beat for the company, whereas revenues surpassed the consensus mark after missing it in the last two quarters.

Adjusted earnings of 14 cents surpassed the Zacks Consensus Estimate of 12 cents by 16.7%. The bottom line also increased 27.3% year over year, primarily favored by an increase in adjusted EBITDA and fewer outstanding shares. Earnings growth was partially offset by an increase in income taxes due to a higher tax rate.

Quarterly revenues of $408.6 million surpassed the consensus mark of $399 million by 2.4%. Moreover, the top line improved 7.4% from the year-ago quarter, driven by increased sales at company-operated restaurants.

Meanwhile, comps at the North America system restaurants were up 1.3% compared with an increase of 0.2% in the fourth quarter and 1.6% improvement in the year-ago quarter.

Notably, the company’s shares have gained 23% so far this year, underperforming the industry’s rally of 16.8%.


Let’s delve deeper into the numbers.

System-Wide Sales Discussion

Global system-wide sales, including company-operated and franchise restaurants, were $2.6 million in the reported quarter, up 2.3% from the prior-year quarter. North America system-wide sales were $2.5 million in the first quarter, reflecting a 2.2% year-over-year increase. Systemwide sales at the International segment amounted to $0.13 million in the quarter under review, up 4.7% year over year.

Operating Highlights

Company-operated restaurant margin was 15% in the reported quarter compared with 13.9% in the year-ago quarter. The 110-basis points (bps) improvement was primarily driven by strong mix management and pricing actions, partially offset by labor rate inflation and declines in the customer count.

General and administrative expenses in the first quarter were $49.3 million, down 2.2% from $50.4 million recorded in the prior-year quarter. This decrease reflected lower salaries and benefits as a result of G&A savings initiatives, partially offset by investments in boosting digital experience.

First-quarter operating profit amounted to $66.3 million, marking a 19.9% improvement from the year-ago quarter’s figure of $55.3 million. Net income of $31.9 million increased from $20.2 million recorded in the year-ago quarter.

Adjusted EBITDA increased 12% from the prior-year quarter, primarily on revenue growth, and lower general and administrative expenses. Adjusted EBITDA margin also expanded 90 bps to 31%.

The Wendy's Company Price, Consensus and EPS Surprise


The Wendy's Company Price, Consensus and EPS Surprise | The Wendy's Company Quote

Balance Sheet

Cash and cash equivalents as of Mar 31, 2019, was $414.2 million compared with $431.4 million as of Dec 30, 2018. Inventories at the end of the first quarter amounted to $3.6 million, slightly lower than $3.7 million at the end of 2018. Long-term debt remained at $2.30 billion as of Mar 31, 2019.

Wendy’s declared a regular quarterly cash dividend of 10 cents per share, which is payable on Jun 17, 2019, to shareholders of record as of Jun 3, 2019. The number of common shares outstanding as of May 1, 2019, was 230.7 million.

The company repurchased 1.7 million shares for $29.3 million in the first quarter at an average price of $16.83 per share. It also has repurchased 0.3 million shares for $5.7 million so far in the second quarter. The company currently has $211.5 million remaining under the existing $225-million share repurchase authorization that will expire on Mar 1, 2020.

Other Developments

In the first quarter of 2019, Wendy’s had 43 global restaurant openings, with a marginal decrease in net new units. Image Activation remains an integral part of the company’s global growth strategy, and includes reimaging of existing restaurants and building new ones. At the end of the first quarter, 51% of the global system was image activated.

Outlook Maintained

For 2019, the company continues to expect global system-wide sales growth of 3-4%. Adjusted EPS is still anticipated to grow 3.5-7%. It further expects adjusted EBITDA growth of roughly 2.5-4.5%. Wendy’s still expects global net new unit growth of 1.5% in 2019.

For 2020, global systemwide sales are expected to be $11.5 billion, with free cash flow of approximately $275 million.

Zacks Rank & Peer Releases

Wendy’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darden DRI reported third-quarter fiscal 2019 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Adjusted earnings of $1.80 per share beat the Zacks Consensus Estimate of $1.75. Moreover, the bottom line increased 5.3% year over year on the back of higher revenues.

Chipotle CMG reported better-than-expected results in the first quarter of 2019. Adjusted earnings of $3.40 per share surpassed the Zacks Consensus Estimate of $3.01 by 13%. The bottom line also grew 59.6% from the year-ago quarter, backed by increased revenues and lower food costs.

Domino’s DPZ reported mixed first-quarter 2019 financial numbers, wherein earnings outpaced the Zacks Consensus Estimate but revenues missed the same. Adjusted earnings of $2.20 per share surpassed the Zacks Consensus Estimate of $2.07 and increased 10% on a year-over-year basis. The bottom-line improvement was driven by higher net income and lower diluted share count as a result of share repurchases.

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