It has been about a month since the last earnings report for Restaurant Brands (QSR). Shares have added about 10.7% 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 catalysts.
Restaurant Brands Q1 Earnings Miss Estimates, Fall Y/Y
Restaurant Brands International 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.
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 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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted -8.92% due to these changes.
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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. 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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