Restaurant Brands (QSR) Down 20.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Restaurant Brands (QSR). Shares have lost about 20.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Restaurant Brands Q4 Earnings Top Estimates

Restaurant Brands International, reported fourth-quarter 2019 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line also increased year over year, buoyed by solid organic growth across the business.

The company’s adjusted earnings came in at 75 cents per share, which beat the Zacks Consensus Estimate of 73 cents and rose 10.3% from the year-ago quarter’s reported figure. Total revenues of $1,479 million beat the consensus mark of $1,461 million by 1.3%. The said figure also increased 6.8% from the year-ago quarter’s figure, courtesy of increased system-wide sales in Burger King and Popeyes.

Notably, the company continues to make progress on its key investment project that includes remodeling programs and digital construction.

Segmental Revenues

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

Revenues at Tim Hortons totaled $872 million compared with $852 million in the prior-year quarter. However, system-wide sales declined 2.9% from the prior-year quarter’s levels. Comps in this segment declined 4.3% against 1.9% growth in the prior-year quarter. Nonetheless, with focus on its fundamentals and founding values, the brand is optimistic regarding its business prospects in Canada.

Burger King’s revenues grew from $427 million in fourth-quarter 2018 to $462 million in the quarter under review, primarily on solid system-wide sales growth in markets including France, Spain, Korea, China, Brazil and Mexico. Also, system-wide sales rose 8.4% from the year-ago quarter’s figure. Comps in this segment increased 2.8% compared with 1.7% growth in the prior-year quarter. In the fourth quarter, net restaurant growth was recorded at 5.9%.

Popeye’s Louisiana Kitchen, reported revenues of $145 million compared with $106 million in the year-ago quarter. System-wide sales rose 42.3% from the prior-year quarter’s level, owing to net restaurant growth of 6.9% and 34.4% rise in comps. Notably, system-wide sales growth compared favorably with the prior-year quarter’s 6.3% increase.

Operating Performance

In the quarter under review, the company’s adjusted EBITDA rose 7.2%, driven by increased sales growth at Burger King and Popeyes. Segment-wise, Tim Horton’s EBITDA declined 0.1% from the year-ago quarter’s tally. Burger King’s EBITDA increased 7.7% year over year. Popeye’s EBITDA also surged 62.4% from the year-ago quarter’s levels.

Cash and Capital

Restaurant Brands ended the fourth quarter with cash and cash equivalent balance of $1,533 million. As of Dec 31, 2019, its total debt was $12.3 billion. The company’s board of directors declared a dividend of 52 cents per common share and partnership exchangeable unit of RBI LP for first-quarter 2020. The dividend is payable on April 3, 2020 to its shareholders of record at the close of business as of March 16, 2020.

2019 Highlights

In 2019, total revenues amounted to $5,603 million, up 4.6% year over year.

Adjusted earnings per share (EPS) for the year ended Dec 31, 2019 was reported at $2.72 compared with $2.63 in 2018.

Adjusted EBITDA increased 4.2% to $2,304 million for the year ended Dec 31, 2019, compared with $2,212 million reported a year ago.

Other Developments

Restaurant Brands has made considerable progress with respect to its Canadian distribution centers in 2019. The company continues to make progress on key investment projects, including the expansion of our Tim Hortons supply chain network in Canada as well as the remodel programs at both Tim Hortons and Burger King. The company expects to finish the project by the second half of 2020.

Notably, the completion will increase the distribution coverage from about 75% to nearly 90%, leading to reduced complexity in deliveries.

Moreover, the company also plans to modernize the drive-through experience by deploying outdoor digital menu boards through the majority of its drive-through locations.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Restaurant Brands has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Restaurant Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.