Florida-based Burger King Worldwide Inc. (BKW) reported mixed second-quarter results, as earnings per share beat the Zacks Consensus Estimate, but revenues missed the same. However, the company’s share prices slid 0.3% as investors were particularly concerned about sluggish comps in U.S. and Canada.
Burger King’s second-quarter 2014 adjusted earnings per share of 25 cents beat the Zacks Consensus Estimate of 23 cents by 8.7%. Also, earnings increased 19% year over year driven by lower operating cost and expenses.
Burger King’s total revenue dropped 6.1% year over year to $261.2 million due to currency headwinds, adverse impact of refranchising of company-owned restaurants. Quarterly revenues also missed the Zacks Consensus Estimate of $263.0 million by 0.7%.
Organically (excluding the impact of refranchising and currency) however, revenues increased 6.4% year over year due to net restaurant growth and comps growth.
Comps Discussion
Overall comps in the quarter nudged up 0.9%, higher than prior-year quarter comps growth of 0.6%. However, comps in the quarter declined from the prior-quarter comps growth of 2% due to sluggish comps in the U.S & Canada segment.
Segment Results
Burger King witnessed 0.4% comps growth in the U.S. & Canada, up from the prior-quarter comps growth of 0.1%, and considerably better than the year-ago quarter’s decline of 0.5%.
Comps grew 0.9% in the Europe, the Middle East, and Africa (EMEA) region, a drop from prior-quarter level of 4.8% and the year-ago quarter’s level of 2.9%. Although the segment delivered its 14th consecutive quarter of comps growth, weak performance in Germany, offset the strength in Turkey, the United Kingdom and Spain. EMEA system-wide sales growth of 11.3% was primarily driven by 346 trailing twelve months (TTM) net restaurant openings.
The Latin America and the Caribbean (LAC) region posted positive comps of 1.1% in the quarter, down from 4% in the prior quarter, but better than negative comps of 2.2% in the year-ago quarter. The company’s comps growth was primarily driven by strength in Brazil partially offset by weakness in Mexico. LAC system-wide sales growth of 14.2% was primarily attributable to the impact of 159 TTM net restaurant openings.
The Asia Pacific (APAC) region continues to perform well with 3.7% comps growth, lower than the year-ago quarter’s level of 3.9%, and the prior-quarter’s level of 3.8%. The comps growth was driven by strong business across Australia and South Korea. China also performed well in the quarter benefiting from the company’s value promotions and menu improvement initiatives. APAC system-wide sales growth of 14.3% was primarily driven by 223 net restaurant openings over the past 12 months.
Margins
Organic adjusted EBITDA grew 13.3% year over year to $182.8 million with solid EBITDA growth across EMEA, LAC as well as APAC region.
Selling, general and administrative expenses declined 66.3% year over year to $15.7 million. Total operating costs and expenses declined 24.4% year over year to $109.7 million.
Dividend Hike
On Jul 31, 2014, the company’s board of directors approved a 14.3% increase in the quarterly dividend to 8 cents per share for the third quarter. The dividend will be paid on Aug 26, 2014, to shareholders of record at the close of business on Aug 12.
Our Take
Despite posting higher earnings in the quarter, Burger King’s revenues in this quarter has been soft due to difficult consumer discretionary environment in the U.S. and the sluggishly recovering economy, which continues to hurt consumers’ discretionary spending.
However, Burger King’s menu improvement initiatives, reimaging efforts and marketing promotions are expected to bode well for future growth. Additionally, we are encouraged by its cost cutting initiatives which are expected to boost bottom-line growth in the upcoming quarters.
Burger King Worldwide, currently, has a Zacks Rank #2 (Buy). Some other stocks that are performing well in the restaurant industry include BJ's Restaurants, Inc. (BJRI), Chipotle Mexican Grill, Inc. (CMG) and Papa John's International Inc. (PZZA). While BJ's Restaurants and Chipotle sport a Zacks Rank #1 (Strong Buy), Papa John's carries the same Zacks Rank as Burger King.
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