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Why Is Restaurant Brands (QSR) Up 1.6% Since Last Earnings Report?

It has been about a month since the last earnings report for Restaurant Brands (QSR). Shares have added about 1.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Restaurant Brands due for a pullback? 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 drivers.

Restaurant Brands Q1 Earnings Beat Estimates, Rise Y/Y

Restaurant Brands reported impressive first-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis. The upside was primarily driven by unit growth, strong digital ordering and a healthy balance of traffic and check.

Earnings & Revenue Discussion

In the quarter under review, the company reported adjusted earnings per share (EPS) of 75 cents, surpassing the Zacks Consensus Estimate of 63 cents. The bottom line increased 17.2% from an adjusted EPS of 64 cents reported in the prior-year quarter.

Quarterly net revenues of $1,590 million surpassed the consensus mark of $1,555 million. The top line increased 9.5% 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”), Popeyes (“PLK”) and Firehouse Subs (FHS). However, this was partially offset by unfavorable FX movements.

Segmental Revenues

Restaurant Brands operates through four segments — Tim Hortons, Burger King, Popeye’s Louisiana Kitchen and Firehouse Subs.

In the first quarter, revenues in Tim Hortons totaled $900 million, up 8.5% from the prior-year quarter’s levels. System-wide sales increased 17.9% year over year compared with growth of 12.9% reported in the prior-year quarter. Comps in the segment rose 13.8% year over year compared with an 8.4% rise reported in the year-ago quarter. In the quarter under review, net restaurant growth was recorded at 5.6% compared with a rise of 6.7% reported in the prior-year quarter.

During the quarter, Burger King’s revenues totaled $484 million, indicating growth of 9.2% from the prior-year quarter’s levels. System-wide sales growth in the segment increased 14.3% year over year compared with a 16.2% growth reported in the prior-year quarter. Comps rose 10.8% year over year compared with a 9.9% increase reported in the prior-year quarter. In the third quarter, net restaurant growth was 2.5% compared with an increase of 2.9% reported in the prior-year quarter.

Popeye’s Louisiana Kitchen generated revenues of $168 million in first-quarter 2023, up 13.8% from the prior-year quarter’s levels. System-wide sales growth came in at 14.4% year over year compared with a 4.1% growth recorded in the prior-year quarter. Comps in the segment rose 5.6% year over year against a 3% decline reported in the prior-year quarter. Net restaurant growth came in at 10.8% compared with a 7.9% growth reported in the prior-year quarter.

During the quarter, Firehouse Subs generated revenues of $38 million indicating growth of 20% from the prior-year quarter’s levels. System-wide sales growth came in at 7.5% year over year compared with 3.9% growth recorded in the previous quarter. Net restaurant growth came in at 2.3% year over year compared with an increase of 2.4% reported in the previous quarter. Comps in the segment rose 6.1% year over year compared with a 0.4% rise in the previous quarter.

Operating Performance

In the quarter under review, the company’s adjusted EBITDA came in at $588 million compared with $530 million reported in the prior-year quarter. On a reported basis, the upside was driven by increases in BK, TH and PLK adjusted EBITDA. However, this was partially offset by unfavorable FX movements.

Segment-wise, Tim Horton’s adjusted EBITDA increased 8.4% year over year to $251 million. Burger King’s adjusted EBITDA increased 11.8% year over year to $256 million. Popeye’s adjusted EBITDA came in at $66 million, up 18% year over year. During the quarter, adjusted EBITDA increased 12.7% year over year to $15 million.

Cash and Capital

Restaurant Brands ended the first quarter with a cash and cash equivalent balance of $1,033 million compared with $1,178 million reported in the previous quarter. As of Mar 31, 2023, long-term debt (net of current portion) stood at $12,821 million, compared with $12,839 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 second quarter of 2023. The dividend is payable on Jul 6, 2023, to shareholders of record at the close of business as of Jun 22, 2023.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Restaurant Brands has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Restaurant Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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