Burger King Worldwide: Reports Third Quarter 2014 Results

Miami / FL. (bkw) Burger King Worldwide Inc. reported financial results for the third quarter ended September 30, 2014. Executive Officer Daniel Schwartz: «We built on our positive momentum in the third quarter as we delivered some of our strongest sales levels in recent years and continued growing our global footprint. In the U.S. and Canada, we posted our best quarter of comparable sales growth since 2012 due to our consistent strategy of impactful new product innovation balanced by compelling value offerings. Internationally, we continued expanding our brand presence through strong net restaurant growth and successful new product launches. Finally, we were excited to announce a definitive agreement with Tim Hortons Inc. (THI) to create a new global leader in the Quick Service Restaurant industry». Third Quarter Highlights:

  • Global comparable sales increased 2.4 percent and system-wide sales increased 7.7 percent in constant currency
  • Adjusted Ebitda increased 11.9 percent on an organic basis to 194.4 million USD
  • Adjusted Diluted EPS increased 18.4 percent to 0.27 USD per share
  • Net restaurant growth of 152, a 14.3 percent increase from the prior year
  • Declared dividend of 0.08 USD per share for the fourth quarter of 2014

Key Performance Indicators

System-wide comparable sales grew 2.4 percent in the third quarter, driven by comparable sales growth in the U.S. and Canada, Europe, the Middle East, and Africa (EMEA), and Asia Pacific (APAC). Net restaurants grew by 701 units over the trailing twelve month (TTM) period, an 18.4 percent year-over-year increase compared to the same period one year ago. Strong comparable sales growth and unit acceleration helped drive system-wide sales growth of 7.7 percent during the quarter.

Third quarter total reported revenues of 278.9 million USD increased 1.4 percent from the prior year. On an organic basis, excluding the impact of currency movements and the global re-franchising initiative completed late last year, revenue increased 5.2 percent year-over-year due to global comparable sales growth and net restaurant growth.

Adjusted Ebitda of 194.4 million USD grew 11.9 percent from the prior year on an organic basis, excluding the impact of currency movements and re-franchising transactions, driven by double-digit organic Adjusted Ebitda growth in EMEA, Latin America and the Caribbean (LAC), and APAC.

Reported Net Income and reported Diluted EPS decreased by (134.5 percent) and (135.1 percent), respectively, during the quarter primarily due to increases in Selling, general and administrative expenses and Other operating expenses related to the Tim Hortons transaction. Following announcement of the transaction, we entered into a foreign currency swap and two foreign currency option contracts to hedge our exposure to currency rate movements between the Canadian and U.S. Dollar. We recognized expenses of 141.8 million USD in Other operating expenses in the quarter primarily driven by the change in the fair value of these instruments due to foreign currency exchange rate fluctuations and deferred premium expense on certain of these instruments. On an adjusted basis, Adjusted Net Income and Adjusted Diluted EPS increased by 18.9 percent and 18.4 percent respectively, compared to the prior year, due to an increase in Adjusted Ebitda partially offset by higher share-based compensation expense and higher interest expense.

Operational and Segment Highlights

U.S. and Canada delivered comparable sales growth of 3.6 percent, the fourth consecutive quarter of positive results, and the best quarter of comparable sales growth since 2012. Consistent with our continued strategy of launching fewer, more impactful products, we reintroduced Chicken Fries during the quarter. The launch, which was supported through an all-digital and social media campaign, helped drive sales and was complemented by the continued popularity of the BBQ Bacon «Whopper» sandwich limited time offering (LTO) and the introduction of our A1 Ultimate Bacon Cheeseburger. During the quarter, we also continued to drive sales with our «King Deals» value menu, which provides guests with fresh new tastes at attractive price points.

EMEA delivered Q3 comparable sales growth of 1.3 percent, its fifteenth consecutive quarter of comparable sales growth. Strength in Türkiye, the United Kingdom, and Spain was partially offset by weakness in Germany. In Türkiye, the premium «Gourmet Series» offerings complemented the Double Deals promotion to help drive sales and traffic during Q3. Similarly, in the United Kingdom, the premium Summer BBQ promotion and «King Savers» value platform drove strong results. Finally, Spain continued to perform well due to the expansion of our popular «EuroKing» value platform. EMEA system-wide sales growth of 11.3 percent was primarily driven by 341 TTM net new restaurant openings.

LAC posted a comparable sales decline of (3.0 percent) in the third quarter, as a result of competitive and macroeconomic headwinds in Mexico and Puerto Rico. LAC system-wide sales growth of 8.7 percent was attributable to the impact of 161 TTM net new restaurant openings.

APAC comparable sales increased by 4.1 percent during Q3, the eighth consecutive quarter of comparable sales growth in the region. Growth was primarily led by Australia, where the Bacon Outback Burger premium LTO performed well, and South Korea, where we introduced the Cheese Fondue «Whopper» sandwich. APAC system-wide sales growth of 23.3 percent was mainly driven by the 235 TTM net new restaurant openings.

Cash and Liquidity

As of quarter end, total debt was 3.0 billion USD and net debt was 2.0 billion USD. The Company´s cash balance increased by 109.0 million USD in the third quarter after making 19.0 million USD of mandatory debt amortization payments and paying out 28.1 million USD in dividends. This increase in cash in addition to an 18.4 million USD year-over-year increase in Adjusted Ebitda caused the net debt to TTM Adjusted Ebitda ratio to decline to 2.8 times.

On November 03, 2014, the Company´s Board of Directors declared a quarterly dividend of 0.08 USD per share for the fourth quarter. The dividend is payable on November 25, 2014, to shareholders of record at the close of business on November 11, 2014. Future dividends will be determined at the discretion of the Board of Directors.

On August 26, 2014, Burger King Worldwide and Tim Hortons Inc. entered into a definitive agreement to create a new global leader in the QSR industry. The transaction is currently expected to close in late 2014 or early 2015.

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