Restaurant Brands Upbeat On Popeyes Buyout, Expenses Bother

Restaurant Brands International Inc. (NYSE:QSR) is trying all means to cope with a challenging operating environment. To this end, the company is focused on improving its level of service through new product development, comprehensive training, reimaging efforts, attractive menu options and delivery expansion.

The company reported mixed fourth-quarter 2017 results, with earnings surpassing the Zacks Consensus Estimate while revenues missing the same. On a year-year-year basis, the top and the bottom line increased 11.1% and 50%, respectively.

Notably, Restaurant Brands outpaced the consensus mark in all of the trailing four quarters, delivering a positive average earnings surprise of 12.6%. Over the past 30 days, the consensus mark for the current quarter has remained stable at 56 cents.

Shares of Restaurant Brands have gained 2.8% in the past year, significantly underperforming the 9.4% rally of the industry it belongs to.

Popeyes Louisiana Kitchen Acquisition Bodes Well

In March 2017, Restaurant Brands acquired Popeyes Louisiana Kitchen (PLK) for $1.8 billion. PLK’s global footprint well complements Restaurant Brands’ legacy portfolio of nearly 24,000 restaurants worldwide.

The acquisition has added a booming, highly regarded brand to Restaurant Brands that has a distinctive position within a compelling segment along with strong customer loyalty and riveting prospects for growth in the United States and internationally. It is likely to lead to accelerated global unit development and aid in cutting costs, thereby proving accretive to earnings.

As of Dec 31, 2017, the company owned or franchised a total of 2,892 PLK restaurants. It plans to carry on developing the brand at a rapid pace in the United States and in international markets.

In the fourth quarter of 2017, PLK revenues came in at $67.6 million and improved 10.8% year over year. System-wide sales rose 6.8% owing to net restaurant growth of 6.1%, partially offset by declining comps.

Restaurant Brands International Inc. Revenue (TTM)

Costs and Currency Remain Headwinds

Costs related to various sales-boosting initiatives are expected to impact the company’s margins. Thus, profitability in the upcoming quarters might somewhat be under pressure despite continued cost discipline.

Moreover, negative currency translation is a concern for Restaurant Brands. The company has considerable international presence and is therefore highly vulnerable to fluctuations in exchange rates.

Zacks Rank & Stocks to Consider

Restaurant Brands carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Dine Brands Global (NYSE:DIN) , BJ's Restaurants (NASDAQ:BJRI) and Carrols Restaurant Group (NASDAQ:TAST) . While DineEquity sports a Zacks Rank #1 (Strong Buy), BJ's Restaurants and Carrols Restaurant Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dine Brands, BJ's Restaurants, Carrols Restaurant Group’s earnings for 2018 are expected to improve 22.7%, 27% and 30%, respectively.

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