It has been about a month since the last earnings report for Restaurant Brands (QSR). Shares have lost about 6.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Restaurant Brands due for a breakout? 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' Q4 Earnings Match Estimates, Falls Y/Y
Restaurant Brands International, Inc. reported decent fourth-quarter 2022 results, with earnings meeting the Zacks Consensus Estimate and revenues surpassing the same. The top line rose year over year, while the bottom line declined from the prior-year quarter's figure.
Negative investor sentiments were witnessed as the management cited concerns about an uncertain operating environment because of inflationary pressures, pandemic-induced restrictions (in certain markets) and the war in Ukraine.
Earnings & Revenue Discussion
During fourth-quarter 2022, the company reported adjusted earnings per share (EPS) of 72 cents, in line with the Zacks Consensus Estimate. The bottom line fell 2.7% from an adjusted EPS of 74 cents reported in the prior-year quarter.
Quarterly net revenues of $1,689 million surpassed the consensus mark of $1,668 million. The top line increased 9.2% on a year-over-year basis. The upside was driven by a rise in system-wide sales at Tim Hortons (or TH), Burger King (BK) and Popeyes (PLK). This and the inclusion of Firehouse Subs (FHS) added to the upside. However, this was partially offset by unfavorable FX movements. During the quarter, digital sales increased 24% year over year to approximately $3.5 billion.
Restaurant Brands operates through four segments — Tim Hortons, Burger King, Popeye’s Louisiana Kitchen and Firehouse Subs.
In the fourth quarter, revenues in Tim Hortons totaled $993 million, up 8.3% from the prior-year quarter’s levels. System-wide sales increased 12.3% year over year compared with growth of 14% reported in the prior-year quarter. Comps in the segment rose 9.4% year over year compared with a 10.3% rise reported in the year-ago quarter. In the quarter under review, net restaurant growth was recorded at 5.8% compared with a rise of 6.9% reported in the prior-year quarter.
During the quarter, Burger King’s revenues totaled $490 million, indicating growth of 2.1% from the prior-year quarter’s levels. System-wide sales growth in the segment increased 11.8% year over year compared with a 15.4% growth reported in the prior-year quarter. Comps rose 8.4% year over year compared with growth of 11.3% reported in the prior-year quarter. In the third quarter, net restaurant growth was 2.8% compared with an increase of 3.3% reported in the prior-year quarter.
Popeye’s Louisiana Kitchen generated revenues of $170 million in third-quarter 2022, up 17.3% from the prior-year quarter’s levels. System-wide sales growth came in at 11.2% year over year compared with a 7.2% growth recorded in the prior-year quarter. Comps in the segment rose 3.8% year over year against a 0.4% decline reported in the prior-year quarter. Net restaurant growth came in at 10.4% compared with a 7.4% growth reported in the prior-year quarter.
During the quarter, Firehouse Subs generated revenues of $36 million compared with $5 million reported in the prior-year quarter. System-wide sales growth came in at 3.9% year over year compared with 18.1% recorded in the prior-year quarter. Net restaurant growth came in at 2.4% year over year compared with an increase of 2.5% reported in the previous quarter. Comps in the segment rose 0.4% year over year compared with a 14.7% rise reported in the prior-year quarter.
In the quarter under review, the company’s adjusted EBITDA came in at $588 million compared with $584 million reported in the prior-year quarter. On a reported basis, the upside was driven by increases in TH, FHS and PLK Adjusted EBITDA. However, this was partially offset by unfavorable FX movements and a fall in BK Adjusted EBITDA.
Segment-wise, Tim Horton’s adjusted EBITDA increased 1.9% year over year to $263 million. Burger King’s adjusted EBITDA fell 7.7% year over year to $246 million. Popeye’s adjusted EBITDA came in at $63 million, up 10.4% year over year. During the quarter, adjusted EBITDA from the Firehouse Subs came in at $16 million.
Cash and Capital
Restaurant Brands ended the fourth quarter with a cash and cash equivalent balance of $1,178 million compared with $946 million reported in the previous quarter. As of Dec 31, 2022, long-term debt (net of current portion) stood at $12,839 million, compared with $12, 853 million reported in the previous quarter.
The company’s board of directors announced a dividend payout of 55 cents per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership in the first quarter of 2023. The dividend is payable on Apr 5, 2023, to shareholders of record at the close of business as of Mar 22, 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
Currently, Restaurant Brands has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 downward 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.
Performance of an Industry Player
Restaurant Brands is part of the Zacks Retail - Restaurants industry. Over the past month, Yum China Holdings (YUMC), a stock from the same industry, has gained 2.2%. The company reported its results for the quarter ended December 2022 more than a month ago.
Yum China reported revenues of $2.09 billion in the last reported quarter, representing a year-over-year change of -8.9%. EPS of $0.13 for the same period compares with $0.03 a year ago.
For the current quarter, Yum China is expected to post earnings of $0.43 per share, indicating a change of +79.2% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Yum China. Also, the stock has a VGM Score of C.
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