Whether or not Restaurant Brands International Inc (NYSE:QSR) beat its fourth-quarter estimates is largely a matter of perspective, and which estimates you’re using. Investors are mostly using the lower numbers as the basis for the comparison though, as QSR stock was up nearly 7% on Monday morning following the release of its Q4 results.
The company, which owns Tim Hortons and Burger King as well as recently acquired Popeyes Louisiana Kitchen, saw sales growth from all three arms, though Burger King was the growth leader as well as the big breadwinner for the quarter in question.
Better still, look for more oversized profit and revenue growth going forward.
Restaurant Brands International Earnings Recap
For its fourth fiscal quarter ending in December, Restaurant Brands International turned $1.23 billion worth of revenue into a reported profit of $1.59 per share, though on a more meaningful operating basis, the company generated earnings of 66 cents per share of QSR stock.
The bottom line was better than the 57 cents per share Zacks Investment Research was modeling, though less than Factset’s collective call for earnings of 72 cents per share of Restaurant Brands International stock. Sales fell short of the than the consensus of $1.26 billion, and Factset’s revenue outlook of $1.57 billion was missed by a country mile.
Still, overall revenue was up 11% from the year-ago top line of $1.11 billion, and adjusted operating earnings for the quarter were up 50% from Q4-2016’s total of 44 cents per share of QSR stock.
The wide variance in expectations may have stemmed from the uncertainty of last year’s acquisition of Popeyes, and the recognition that Popeyes and Burger King both began new promotional campaigns during the quarter.
Same-store sales were up overall, though only thanks to the big improvement at Burger King. Its same-store sales were up 3.1%, offsetting slight dips in same-store sales at Tim Hortens and Popeyes Louisiana Kitchen.
CEO Daniel Schwartz commented on the fourth quarter numbers:
“We are pleased to report another year of strong results. After acquiring POPEYES(r) earlier in 2017, we made good progress integrating the business, and we remain highly encouraged by the brand’s growth potential. We also improved system-wide sales growth at BURGER KING(r) this year, driven by accelerated net restaurant growth and continued comparable sales momentum. At TIM HORTONS(r), we launched our mobile app and our espresso based beverage platform in Canada and the U.S. and also opened our first restaurants in Asia, Europe and Latin America.”
Restaurant Brands International’s Q4 results moved in the same positive direction as those of McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM), which owns Taco Bell, Pizza Hut and KFC. Yum’s earnings grew 20% year-over-year thanks to a move away from company-owned stores and refranchising. McDonald’s saw nice profit growth last quarter as well, largely on the heels of a similar shift in its franchisee/company-owned store mix.
Same-store sales were up 5.5% for McDonald’s last quarter, and grew 2.0% for Yum! Brands.
Though Burger King was the only arm to see same-store sales growth for the quarter, all three units saw overall revenue growth thanks to new-store openings. Popeyes’ sales were up 6.8% year-over-year, and Tim Horten’s top line was up 2.4%. Burger King still led the way though, with a 12.3% increase in overall sales.
The revenue mix matters, however. Total sales at its company-owned restaurants was up 6.5% to $606.2 million. Franchise fees and property revenue of $628.0 million was up 15.8%, reflecting the push towards more franchised restaurants.
Broadly speaking, franchise fee revenue is higher margin revenue than that driven by the restaurants outright owned by the company.
Burger Kings, as a group, generated revenue of $5.3 billion for the quarter, or about two-thirds of the combined revenue created by the company’s three divisions. And yet, it’s not the most profitable arm on an EBITDA basis. That honor belongs to Tim Horten, which earned $304.1 million before interest, taxes and depreciation are factored in. Burger King, which are mostly franchised, only produced $265.3 million worth of EBITDA. Popeyes Louisiana Kitchen’s EBITDA was a modest $36.9 million.
Looking Ahead for QSR Stock
The company did not offer guidance for the quarter or for the year currently underway. But, as of the latest look, analysts were collectively expecting revenue of $1.15 billion to drive earnings of 56 cents per share. That’s better than the $1.0 billion in revenue and 36 cents worth of earnings per share of QSR stock reported a year earlier.
For all of 2018, the pros are calling for earnings of $2.68 per share on sales of $4.98 billion. That’s a marked improvement on the $4.57 billion in revenue and profits of $2.10 per share of QSR stock booked for fiscal 2017.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.