It has been about a month since the last earnings report for Restaurant Brands (QSR). Shares have added about 1.5% 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 Q3 Earnings Top Estimates, Revenues Lag
Restaurant Brands reported mixed third-quarter 2021 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed the same. However, the metrics improved on a year-over-year basis. Earnings beat the consensus estimate for the third straight quarter, whereas revenues missed the same after surpassing in the preceding three quarters.
The company results benefited from significant opportunities at Burger King U.S., robust digitalization and new restaurant openings globally by its franchisees.
Earnings & Revenues Discussion
The company’s adjusted earnings of 76 cents per share surpassed the Zacks Consensus Estimate by a penny. The bottom line improved 11.8% from the prior-year quarter’s figure of 68 cents.
During the third quarter, net revenues of $1,495 million missed the consensus mark of $1,511 million. However, the top line increased 11.8% on a year-over-year basis, owing to higher system-wide sales in all of its brands and performance growth across Tim Hortons and Burger King segments.
Restaurant Brands operates through three segments — Tim Hortons, Burger King and Popeye’s Louisiana Kitchen.
During third-quarter 2021, revenues in Tim Hortons totaled $885 million, up 16.1% from the prior-year quarter. System-wide sales increased 11.1% year over year against a 13.7% fall in the prior-year quarter. Comps in the segment jumped 8.9% year over year versus a 12.5% decline in the year-ago quarter. In the quarter under review, net restaurant growth was recorded at 4.1% compared with 1% in the prior-year quarter.
Burger King’s revenues totaled $467 million in third-quarter 2021, indicating growth of 7.9% from the prior-year quarter. System-wide sales growth in the segment increased 12.3% year over year against a 7.9% decline in the prior-year quarter. Comps rose 7.9% year over year against a 7% fall in the prior-year quarter. In the third quarter, net restaurant growth was 1.3% compared with a 2.4% improvement in the prior-year quarter.
Popeye’s Louisiana Kitchen reported revenues of $143 million in third-quarter 2021, up 1.2% from the prior-year quarter. System-wide sales growth came in at 4.4% year over year compared with 21.5% growth recorded in the prior-year quarter. Net restaurant growth came in at 5.5% compared with 7.1% growth in the prior-year quarter. Comps in the segment declined 2.4% versus 17.4% growth in the prior-year quarter.
In the quarter under review, the company’s adjusted EBITDA increased 8.2% year over year to $607 million. On an organic and reported basis, the upside was driven by an increase in Tim Hortons and Burger King’s adjusted EBITDA.
Segment-wise, Tim Horton’s adjusted EBITDA increased 7.8% from the year-ago quarter’s figure. Burger King’s adjusted EBITDA rose 11% year over year. However, Popeye’s adjusted EBITDA moved down 1.7% from the year-ago quarter levels.
Cash and Capital
Restaurant Brands ended the third quarter with a cash and cash equivalent balance of $1,773 million. As of Sep 30, 2020, its net debt stood at $11.2 billion compared with $10.9 billion as of Sep 30, 2020. The company’s board of directors announced a dividend payout of 53 cents per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership for third-quarter 2021. The dividend is payable on Jan 5, 2022, to shareholders of record at the close of business as of Dec 21, 2021.
During the three months ended Sep 30, 2021, 97% of the company’s restaurants were open worldwide, including approximately 98% of restaurants in the United States and Canada and around 96% of restaurants in the rest of the world. Meanwhile, on average, 94% of the restaurants were open worldwide, including approximately 97% of restaurants in the United States and Canada and around 91% of restaurants in the rest of the world.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.19% due to these changes.
At this time, Restaurant Brands has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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.
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