The Wendy’s Company WEN entered into a stock transaction with East Balt Bakeries as per which the latter acquired Wendy's Zanesville, OH bakery business, The New Bakery Company, LLC. The announcement to sell the bakery business was made by Wendy’s during the first quarter conference call.
Based in Chicago, IL, East Balt is a global bakery business with 21 bakeries in 12 countries where it offers a number of high quality products including buns, bagels, biscuits, English muffins, tortillas and breads. Besides eliminating capital expenses, the sale of bakery operations would allow the company to focus its resources on the core restaurant business. Despite the sale, the facility will continue to serve as one of Wendy's bakery vendors, thereby consistently providing high-quality products to the company.
This Zacks Rank #3 (Hold) company has been consistently making efforts to lower its overhead expenses as well as capital expenditures. The company has undertaken a system optimization initiative since Jul 2013 to lower its ownership of restaurants, thereby moving to a franchise-based model.
Though the reduction in ownership is currently weighing on near-term revenues, we believe franchising a large chunk of its system will lower Wendy’s general and administrative expenses and thereby boost earnings, going forward. Moreover, over the long term, it would generate a higher return on equity by lowering capital requirements. This would also boost free cash flow, thereby enhancing shareholder return. Besides adding to the top line in the form of royalty and rental income, it would allow the company to penetrate the market more quickly.
Amid the current challenging environment, these efforts are expected to bode well for the company’s growth.
Stocks to Consider
Some better-ranked stocks that can be considered in the restaurant industry include BJ's Restaurants, Inc. BJRI, Restaurant Brands International Inc. QSR and Ruby Tuesday, Inc. RT. All three stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment