Oakville / CA. (rbi) Restaurant Brands International Inc. (RBI) reported financial results for the first quarter ended March 31, 2019. Jose Cil, Chief Executive Officer of Restaurant Brands International Inc. (RBI) commented, «At Burger King and Popeyes, we saw strong system-wide sales growth driven by net restaurant growth, reflecting the strength of our brands and business model around the world. Underlying fundamentals at Tim Hortons remain strong and we are excited about our first three restaurants in China. Overall, we are confident in the long-term growth prospects for each of our three iconic brands, and remain focused on providing a great guest experience while driving franchisee profitability.»
| Consolidated Operational Highlights | Three Months Ended March 31, | ||||||
| (Unaudited) | 2019 | 2018 | |||||
| . | |||||||
| System-wide Sales Growth | |||||||
| TH | 0.5 | % | 2.1 | % | |||
| BK | 8.2 | % | 11.3 | % | |||
| PLK | 6.8 | % | 10.9 | % | |||
| Consolidated | 6.4 | % | 9.2 | % | |||
| System-wide Sales (in USD millions) | |||||||
| TH | USD | 1,547 | USD | 1,608 | |||
| BK | USD | 5,289 | USD | 5,149 | |||
| PLK | USD | 955 | USD | 903 | |||
| Consolidated | USD | 7,791 | USD | 7,660 | |||
| Net Restaurant Growth | |||||||
| TH | 1.9 | % | 2.8 | % | |||
| BK | 5.7 | % | 6.9 | % | |||
| PLK | 6.6 | % | 6.7 | % | |||
| Consolidated | 5.1 | % | 6.1 | % | |||
| System Restaurant Count at Period End | |||||||
| TH | 4,866 | 4,774 | |||||
| BK | 17,823 | 16,859 | |||||
| PLK | 3,120 | 2,926 | |||||
| Consolidated | 25,809 | 24,559 | |||||
| Comparable Sales | |||||||
| TH | (0.6) | % | (0.3) | % | |||
| BK | 2.2 | % | 3.8 | % | |||
| PLK | 0.6 | % | 3.2 | % | |||
Note: System-wide sales growth and comparable sales are calculated on a constant currency basis and include sales at franchise restaurants and company-owned restaurants. System-wide sales are driven by sales at franchise restaurants, as approximately 100 percent of current restaurants are franchised. We do not record franchise sales as revenues; however, our franchise revenues include royalties based on a percentage of franchise sales.
Consolidated Financial Highlights
| (Unaudited) | Three Months Ended March 31, | ||||||||||||||||||||||||||||
| (in USD millions, except per share data) | 2019 | 2018 | |||||||||||||||||||||||||||
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| Total Revenues | USD | 1,266 | USD | 1,254 | |||||||||||||||||||||||||
| Net Income Attributable to Common Shareholders and Noncontrolling Interests | USD | 246 | USD | 279 | |||||||||||||||||||||||||
| Diluted Earnings per Share | USD | 0.53 | USD | 0.59 | |||||||||||||||||||||||||
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| TH Adjusted Ebitda(1) | USD | 237 | USD | 245 | |||||||||||||||||||||||||
| BK Adjusted Ebitda(1) | USD | 222 | USD | 214 | |||||||||||||||||||||||||
| PLK Adjusted Ebitda(1) | USD | 41 | USD | 39 | |||||||||||||||||||||||||
| Adjusted Ebitda(2) | USD | 500 | USD | 498 | |||||||||||||||||||||||||
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| Adjusted Net Income(2) | USD | 255 | USD | 314 | |||||||||||||||||||||||||
| Adjusted Diluted Earnings per Share(2) | USD | 0.55 | USD | 0.66 | |||||||||||||||||||||||||
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| (Unaudited) | As of March 31, | ||||||||||||||||||||||||||||
| (in USD millions, except per share data) | 2019 | 2018 | |||||||||||||||||||||||||||
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| LTM Free Cash Flow(2) | USD | 1,346 | USD | 951 | |||||||||||||||||||||||||
| Net Debt | USD | 11,364 | USD | 11,415 | |||||||||||||||||||||||||
| Net Leverage(2) | 5.1x | 5.2x | |||||||||||||||||||||||||||
(1)TH Adjusted Ebitda, BK Adjusted Ebitda and PLK Adjusted Ebitda are our measures of segment profitability.
(2)Adjusted Ebitda, Adjusted Net Income, and Adjusted Diluted Earnings per Share, LTM Free Cash Flow, and Net Leverage are non-GAAP financial measures. Please refer to “Non-GAAP Financial Measures” for further detail.
Effective January 01, 2019, we adopted the new lease accounting standard (New Standard). Our consolidated financial statements for 2019 reflect the application of the New Standard, while our consolidated financial statements for 2018 were prepared under the guidance of the previously applicable lease accounting standard (Previous Standard).
The most significant changes of this adoption that affect comparability of our results of operations between 2019 and 2018 are summarized as follows:
- Under the Previous Standard, we did not reflect reimbursements of property tax and maintenance costs from lessees and sublessees or related costs in our Consolidated Statement of Operations or segment results. Under the New Standard, property tax and maintenance costs and related reimbursements from lessees and sublessees are reported on a gross basis in our Consolidated Statement of Operations and segment results. Although there is no net impact to Net Income Attributable to Common Shareholders and Noncontrolling Interests or Adjusted Ebitda from this change, the presentation resulted in a total increase of USD 34 million in franchise and property revenues and franchise and property expenses.
- Additionally, the New Standard requires the reclassification of favorable lease assets and unfavorable lease liabilities to the right-of-use asset recorded for the underlying lease. As a result, the amortization period for certain lease assets and liabilities was reduced, resulting in a year-over-year increase of approximately USD 2 million in non-cash amortization in the three months ended March 31, and expect a full year increase of approximately USD 10 million in 2019 compared to 2018. Amortization of favorable and unfavorable leases is classified as depreciation and amortization and is excluded from segment income. This impact is expected to decrease significantly over the following few years as leases tied to the increased amortization are renewed or expire. The estimated impact is based on our existing lease portfolio as of December 31, 2018.
The implementation of the New Standard also impacted our Consolidated Balance Sheets, the most significant of which was the recognition of approximately USD 1.1 billion of operating lease liabilities and related right-of-use assets on January 01, 2019. Additionally, «capital leases» have been renamed as «finance leases» under the New Standard, with no material changes in accounting.
The year-over-year change in Total Revenues on a GAAP basis was primarily driven by FX movements. On an organic basis, the year-over-year change in Total Revenues was primarily driven by system-wide sales growth.
The decrease in Net Income Attributable to Common Shareholders and Noncontrolling Interests for the first quarter was primarily driven by an increase in income tax expense resulting from a reduced tax benefit of equity based compensation as compared to the prior year.
The year-over year change in Adjusted Ebitda on an organic basis was primarily driven by system-wide sales growth, partially offset by timing of advertising revenues and expenses.
TH Segment Results
For the first quarter of 2019, system-wide sales growth was primarily driven by net restaurant growth of 1.9 percent. Comparable sales were (0.6) percent, including Canada comparable sales of (0.4) percent. The year-over-year change in GAAP Total Revenues was primarily driven by FX movements. On an organic basis, the year-over-year change in Total Revenues was primarily driven by a decrease in company restaurant revenues (VIE deconsolidation and refranchisings), partially offset by system-wide sales growth. The year-over-year change in Adjusted Ebitda was primarily driven by FX movements, however, on an organic basis Adjusted Ebitda was primarily driven by system-wide sales growth, partially offset by timing of advertising revenues and expenses.
BK Segment Results
For the first quarter of 2019, system-wide sales growth was driven by net restaurant growth of 5.7 percent as well as comparable sales of 2.2 percent, including US comparable sales of 0.4 percent. The year-over-year change in Total Revenues on a GAAP and on an organic basis was primarily driven by system-wide sales growth. This is partially offset by FX movements on a GAAP basis. The year-over-year change in Adjusted Ebitda and Adjusted Ebitda on an organic basis was primarily driven by system-wide sales growth.
PLK Segment Results
For the first quarter of 2019, system-wide sales growth was driven by net restaurant growth of 6.6 percent. Comparable sales were 0.6 percent, including US comparable sales of 0.4 percent. The year-over-year change in Total Revenues on a GAAP and on an organic basis was primarily driven by system-wide sales growth partially offset by a decrease in company restaurant revenue (related to refranchisings). The year-over-year change in Adjusted Ebitda and Adjusted Ebitda on an organic basis was primarily driven by system-wide sales growth.
Cash and Liquidity
As of March 31, 2019, total debt was USD 12.3 billion, net debt (total debt less cash and cash equivalents of USD 0.9 billion) was USD 11.4 billion, and net leverage was 5.1x. The RBI Board of Directors has declared a dividend of USD 0.50 per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership for the second quarter of 2019. The dividend will be payable on July 03, 2019 to shareholders and unitholders of record at the close of business on June 17, 2019.
