Restaurant Brands (QSR) Q1 Earnings & Revenues Top Estimates

Restaurant Brands International, Inc.’s (NYSE:QSR) first-quarter 2018 earnings and revenues surpassed the Zacks Consensus Estimate.

The company’s top line in the quarter was favored by continued positive sales momentum at Burger King while the bottom line benefitted from strong growth in revenues and favorable tax rate.

Changes in Accounting Standards

The company announced that it has implemented two new accounting standards that impacted first-quarter results.

From the beginning of 2018, Restaurant Brands adopted a new revenue recognition accounting standard, under which the company is complying the initial and renewal franchise fees and recognizing revenues over the term of the related franchise agreement instead of franchise fee, at the time of executing all material obligations and services.

Additionally, Restaurant Brands also adopted a new guidance related to hedge accounting. Under this guidance, the company will not include amounts pertaining to cross-currency rate swaps in net interest expenses. In this way, management expects to spot a benefit in net interest expense.

Earnings & Revenue Discussion

Per the new accounting standard, adjusted earnings of 66 cents in the first quarter surpassed the Zacks Consensus Estimate of 56 cents by 17.9%. Earnings under the previous accounting standard came in at 67 cents, which also grew 86.1% year over year.

Total revenues of $1,253.8 million surpassed the consensus estimate of $1,126 million by 11.3%. However, revenues under the previous accounting standard totaled $1,071.8 million, lower than the consensus mark but exceeded the prior-year quarter’s revenues of $1,000.6 million by 7.1%.

Restaurant Brands International Inc. Price, Consensus and EPS Surprise

Restaurant Brands International Inc. Price, Consensus and EPS Surprise | Restaurant Brands International Inc. Quote

Detailed Revenue Discussion by Segments

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

Tim Hortons reported revenues of $763.5 million, reflecting a rise of 4.1% from the prior-year quarter, primarily owing to greater franchise and property revenues. Under the previous standards of accounting, total revenues declined 3% year over year, primarily reflecting a decrease in supply chain-related revenues, partially offset by a favorable impact of FX movements.

System-wide sales increased 2.1% on the back of net restaurant growth. Comps at this segment declined 0.3% in the quarter versus 0.1% decrease in the prior-year quarter and 0.1% increase in the preceding quarter. Comps were affected due to relatively flat Canada comparable sales.

Burger King’s revenues were up 46% from the prior-year quarter to $389.9 million, mainly on the back of system-wide sales growth. Considering the previous accounting standard, total revenues in the quarter grew 9.7%.

System-wide sales rose 11.3%, higher than 6.2% growth in the year-ago comparable period and 12.3% increase in the preceding quarter. System-wide sales growth can be attributed to net restaurant growth of 6.9% and positive comps growth.

Comps grew 3.8% in the quarter under review versus 0.1% decline in the prior-year quarter and 4.6% increase in the preceding quarter. The upside was driven by U.S. comps growth of 4.2%.

Popeye’s Louisiana Kitchen, which was acquired on Mar 27, 2017, reported revenues of $100.4 million in the quarter.

System-wide sales rose 10.9%, owing to net restaurant growth of 6.7% and comps growth of 3.2%. Comps in the segment were driven by U.S. comparable sales growth of 2.3%.

Operating Performance (Per the Previous Accounting Standard)

The company’s adjusted EBITDA rose 8.7% (5% FX neutral), owing to revenue increase and cost management. Segment wise, Tim Hortons EBITDA fell 2.2% (6.1% on an FX neutral basis) year over year due to a decline in revenues. Burger King’s EBITDA was up 14.9% (11.5% on an FX neutral basis) year over year, driven primarily by revenue growth and cost control. Popeye’s EBITDA grew 80.5% (on both actual and organic count) on revenue growth.

Cash and Capital

The company exited the quarter with cash and cash equivalent balance of $852.4 million under the new accounting standard. Accounts and notes receivable balance was $467.6 million and inventories were $74.6 million. In the quarter, net cash used for operating activities was $111 million.

Zacks Rank & Peer Release

Restaurant Brands carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darden (NYSE:DRI) reported mixed third-quarter fiscal 2018 results, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same. Adjusted earnings of $1.71 per share increased 29.5% year over year on the back of higher revenues.

Upcoming Peer Releases

Chipotle (NYSE:CMG) is scheduled to report first-quarter 2018 results on Apr 25, after market close. The company carries a Zacks Rank #3. Meanwhile, McDonald's (NYSE:MCD) , carrying a Zacks Rank #3, is scheduled to report first-quarter 2018 results on Apr 30, before market open.

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