Burger King Beats on Q4 Earnings, Misses on Rev - Analyst Blog


Leading restaurateur, Burger King Worldwide Inc. ( BKW ) posted mixed fourth-quarter 2013 results. Burger King's fourth-quarter adjusted earnings per share of 24 cents beat the Zacks Consensus Estimate by a penny. Also earnings increased 22.4% year over year driven by higher adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and lower operating cost and expenses.

Following the release of fourth-quarter results, the company's share price rose 1.1%.

Burger King's total revenue dropped 34.4% year over year to $265.2 million due to the currency headwinds, adverse impact of refranchising, lower company restaurant sales and muted comparable sales (comps) growth. Quarterly revenues also marginally missed the Zacks Consensus Estimate of $267.0 million by 0.7%.

Organically (excluding the impact of refranchising and currency) however, revenues increased 5.2% in the quarter thanks to net restaurant growth and higher comps in the Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) regions.

Comps Discussion

Overall comps in the quarter nudged up 1.7%, higher than the third-quarter comps growth of 0.9% but lower than the year-ago quarter's comps of 2.7%. Comps in the quarter were affected by weak performance in U.S. & Canada region, offset by solid comps results in both APAC and EMEM regions.

Segment Results

Burger King witnessed 0.2% comps growth in U.S. & Canada , down from the year-ago quarter's level of 3.7% but better than third-quarter's negative comps of 0.3%.

The sluggish macroeconomic environment and stiff competition led to such lower comps results in the region. In an attempt to counter the downfall in comps, management has altered the menu and undertaken promotional strategies in the region to increase traffic. Burger King remains steadfast in executing its Four Pillars strategy in this region that includes menu improvements, marketing initiatives, operational efficiency and re-imaging.

Comps grew 3.3% in the EMEA region, higher than the year-ago quarter's level of 1.7%. Quarterly comps received a boost from the company's value promotion platform "Trial Weeks" in Germany. The company also performed well in Spain gaining from its promotional effort.

Latin America and the Caribbean (LAC) region posted positive comps of 1.8% in the fourth quarter gaining from solid traffic growth in Brazil. The company's limited-time offerings augmented sales in Brazil during the quarter.

The APAC region continues to be the star performer with 6.2% comps growth, significantly higher than the year-ago quarter's level of 0.8%, driven by strong business across Australia and South Korea. China also did well in the quarter benefiting from the company's value promotions and menu improvement initiatives.


Organic adjusted EBITDA grew 14.3% year over year to $182.1 million with solid EBITDA growth across EMEA, as well as APAC region and lower general and administrative expense (G&A). Adjusted EBITDA margins were 68.7%, significantly higher than the year-ago level of 42.6%, driven by refranchising efforts and cost containment initiatives.

Food, paper and product costs as well as occupancy and other operating costs ratio were considerably lower in the quarter.

Full-Year 2013 Highlights

Adjusted earnings per share in full-year 2013 were up 22.4% year over year to 84 cents per share, beating the Zacks Consensus Estimate of 83 cents by a penny. Revenues were $1.15 billion, down 41.8% year over year, but in line with the Zacks Consensus Estimate.

Refranchising & Re-imaging

In 2013, Burger King finished its global refranchising efforts. The company unveiled a total of 670 restaurants worldwide and completed re-imaging another 600. The company has also remodeled nearly 30% of its U.S. & Canada restaurants in the year.

Our Take

Even though Burger King posted higher earnings in the quarter, its revenues have been soft due to difficult consumer discretionary environment in the U.S. Government budget cuts, high tax rates and still-tightened credit availability continue 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. We believe the company safeguards its position and growth prospects amid a sluggish macro-environment through franchising.

Other Stocks to Consider

Burger King Worldwide currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant industry include Fiesta Restaurant Group, Inc. ( FRGI ), Brinker International, Inc. ( EAT ) and Buffalo Wild Wings Inc. ( BWLD ). While Fiesta Restaurant sports a Zacks Rank #1 (Strong Buy), Brinker and Buffalo Wild Wings carry a Zacks Rank #2 (Buy).

BURGER KING WWD (BKW): Free Stock Analysis Report

BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

BRINKER INTL (EAT): Free Stock Analysis Report

FIESTA RESTRNT (FRGI): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BKW , BWLD , EAT , FRGI



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