Restaurant brands: EPS misses estimates

Restaurant brands International (DAC 0.09%)The fast food giant behind Tim Hortons, Burger King, Popeyes and Firehouse Subs recently reported third-quarter 2024 earnings on November 5th. The company reported a slight revenue shortfall of $2.291 billion versus the $2.350 billion expected by analysts. Adjusted earnings per share were $0.93, below expectations of $0.9498. Despite these missteps, the company managed to grow annual adjusted earnings per share by 4.6%, hinting at a positive but modest growth trajectory for the quarter as a whole.

Source: Analyst estimates for the quarter provided by FactSet.

Understanding international restaurant brands

Restaurant Brands International (RBI) primarily operates as a franchisor, generating revenue from franchise royalties, franchise fees, and property and advertising revenues. This model distributes operational risk among franchisees while providing stable cash flow, which helps scale the business with minimal capital investment. With more than 30,000 restaurants worldwide, its franchising model is fueling rapid international expansion.

In recent times, RBI’s business focus has been on streamlining operations through technological improvements and expanding its international presence. Key factors for the company’s success include leveraging technology initiatives to improve customer engagement and operational efficiency, and strengthening its presence in international markets through strategic prowess. franchise agreements.

Quarterly Events and Financials

RBI’s quarter saw strategic growth, especially in the international segment, where system-wide sales increased by 8.0%. The division benefited from a 7.6% increase in restaurant openings, highlighting RBI’s aggressive international expansion efforts. Popeyes has experienced significant growth overseas, adding to the strategy’s effectiveness.

Despite strong international results, the company’s revenue and earnings per share fell short of analysts’ expectations, highlighting some underlying issues. For example, while Tim Hortons in Canada saw comparable sales increase by 2.7%, Burger King and Firehouse Subs saw sales decline, impacting the overall balance of the brand portfolio. A year-over-year decline in franchise revenue from $753 million to $735 million further exacerbated these challenges.

Strategic investments also played a role in the quarter, with $8 million allocated to the “Fuel the Flames” initiative and $16 million to “Royal Reboot” initiatives aimed at improving franchisee profitability and efficiency. However, these investments need to be aligned with profitability to see meaningful returns in the coming quarters.

The quarter also continued its sustainability efforts with RBI taking steps to enhance its brand image and loyalty. Such initiatives, although less detailed in the press release, are based on the company’s long-term growth strategy and community engagement.

Looking Ahead: Strategic Future

Going forward, RBI maintains its guidance of achieving over 8% organic growth in adjusted operating profit for the year. The Company plans to continue its capital expenditures and strategic turnaround efforts, such as refranchising acquired restaurants, to achieve its long-term goals.

The area of ​​interest for investors will be the balance of performance between the various brands in RBI’s portfolio. Watching how the company deals with system-wide sales declines, particularly at Burger King and Firehouse Subs, will be critical. Also critical will be RBI’s execution of its strategy of international expansion and technological advancement, which is expected to fuel its growth in the coming quarters.