Oakville / CA. (rbi) Restaurant Brands International Inc. (RBI) reported financial results for the third quarter ended September 30, 2018. Chief Executive Daniel Schwartz commented, «During the third quarter, together with our franchisees, we continued to improve Tim Hortons comparable sales by executing against our ‘Winning Together’ plan. We also unveiled our new, modern ‘Burger King of Tomorrow’ restaurant image and our plans to roll out the image across the U.S. At Popeyes, we continued to accelerate net restaurant growth and signed additional restaurant development agreements, including in the Philippines. We remain confident that our focus on guest satisfaction and franchisee profitability will drive growth at all three of our brands for many years to come».
Consolidated Operational Highlights
(Unaudited) | 2018 | 2017 | |||
System-wide Sales Growth | |||||
TH | 2.8% | 3.0% | |||
BK | 7.8% | 11.2% | |||
PLK | 7.9% | 4.5% | |||
System-wide sales (in USD millions) | |||||
TH | USD | 1,793.4 | USD | 1,812.3 | |
BK | USD | 5,544.4 | USD | 5,335.0 | |
PLK | USD | 956.4 | USD | 897.3 | |
Comparable Sales | |||||
TH | 0.6% | 0.3% | |||
BK | 1.0% | 3.6% | |||
PLK | 0.5% | (1.8)% | |||
Net Restaurant Growth | |||||
TH | 2.7% | 4.2% | |||
BK | 6.1% | 6.6% | |||
PLK | 7.6% | 5.9% | |||
System Restaurant Count at Period End | |||||
TH | 4,805 | 4,680 | |||
BK | 17,239 | 16,253 | |||
PLK | 3,022 | 2,809 |
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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 and USD in millions, except per share data) | 2018 | 2018 | 2017 | |||||
New Standard | Previous Standards | Previous Standards | ||||||
Total Revenues | USD | 1,375.3 | USD | 1,182.0 | USD | 1,208.6 | ||
Net Income Attributable to Common Shareholders | USD | 133.6 | USD | 136.5 | USD | 91.4 | ||
Net Income Attributable to Common Shareholders and Noncontrolling Interests | USD | 249.7 | USD | 255.2 | USD | 179.0 | ||
Diluted Earnings per Share | USD | 0.53 | USD | 0.54 | USD | 0.37 | ||
TH Adjusted Ebitda(1) | USD | 298.9 | USD | 294.1 | USD | 294.4 | ||
BK Adjusted Ebitda(1) | USD | 231.0 | USD | 237.6 | USD | 233.9 | ||
PLK Adjusted Ebitda(1) | USD | 41.5 | USD | 44.0 | USD | 36.8 | ||
Adjusted Ebitda(2) | USD | 571.4 | USD | 575.7 | USD | 565.1 | ||
Adjusted Net Income(2) | USD | 297.9 | USD | 302.4 | USD | 275.6 | ||
Adjusted Diluted Earnings per Share(2) | USD | 0.63 | USD | 0.64 | USD | 0.58 |
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(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 are non-GAAP financial measures.
Effective January 01, 2018, RBI adopted the new revenue recognition accounting standard («New Standard»). Our consolidated financial statements for 2018 reflect the application of the New Standard, while our consolidated financial statements for 2017 were prepared under the guidance of previously applicable accounting standards («Previous Standards»). Our results presented herein indicate which revenue recognition methodology applies in each respective period.
The implementation of the New Standard impacted our year-over-year results on a consolidated basis and for each segment as follows:
- Total Revenues increased primarily as a result of the inclusion of advertising fund contributions
- Selling, General, and Administrative Expenses increased as a result of the inclusion of advertising fund expenditures
Under Previous Standards, Total Revenues for the third quarter declined as a result of an unfavorable FX impact, partially offset by system-wide sales growth.
Under both the New Standard and Previous Standards, the increase in Net Income Attributable to Common Shareholders for the quarter was driven by the redemption of our preferred shares in December of 2017, a decrease in loss on extinguishment of debt due to the redemption of our 2014 6.00 percent Senior Notes in 2017, and growth in segment income, partially offset by an increase in income tax expense.
Under Previous Standards, Adjusted Ebitda for the quarter grew 5.5 percent on an organic basis versus prior year results, driven primarily by system-wide sales growth.
TH Segment Results
(unaudited and USD in millions) | Q3/2018 | Q3/2017 | |||
New Standard | Previous Standard | ||||
System-wide Sales Growth | 2.8% | 3.0% | |||
System-wide Sales | USD | 1,793.4 | USD | 1,812.3 | |
Comparable Sales | 0.6% | 0.3% | |||
Net Restaurant Growth | 2.7% | 4.2% | |||
System Restaurant Count at Period End | 4,805 | 4,680 | |||
Sales | USD | 570.9 | USD | 585.5 | |
Franchise and Property Revenues | USD | 283.0 | USD | 241.5 | |
Total Revenues | USD | 853.9 | USD | 827.0 | |
Cost of Sales | USD | 436.9 | USD | 454.2 | |
Franchise and Property Expenses | USD | 71.6 | USD | 83.2 | |
Segment SG+A | USD | 75.8 | USD | 24.1 | |
Segment Depreciation and Amortization | USD | 25.8 | USD | 26.1 | |
Adjusted Ebitda(1)(3) | USD | 298.9 | USD | 294.4 |
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(3)TH Adjusted Ebitda includes USD 3.4 million and USD 2.8 million of cash distributions received from equity method investments for the three months ended September 30, 2018 and 2017, respectively.
For the third quarter of 2018, system-wide sales growth was primarily driven by net restaurant growth of 2.7 percent and comparable sales of 0.6 percent, including Canada comparable sales of 0.9 percent.
Under Previous Standards, Total Revenues for the quarter declined (3.7) percent (flat excluding the impact of FX movements) versus prior year results, reflecting an unfavorable FX impact and a decrease in company restaurant revenue as a result of VIE deconsolidation, partially offset by system-wide sales growth.
Under Previous Standards, Adjusted Ebitda for the quarter grew 3.7 percent on an organic basis versus prior year results, reflecting system-wide sales growth.
BK Segment Results
(unaudited and USD in millions) | Q3/2018 | Q3/2017 | |||
New Standard | Previous Standard | ||||
System-wide Sales Growth | 7.8% | 11.2% | |||
System-wide Sales | USD | 5,544.4 | USD | 5,335.0 | |
Comparable Sales | 1.0% | 3.6% | |||
Net Restaurant Growth | 6.1% | 6.6% | |||
System Restaurant Count at Period End | 17,239 | 16,253 | |||
Sales | USD | 18.4 | USD | 23.4 | |
Franchise and Property Revenues | USD | 398.0 | USD | 290.2 | |
Total Revenues | USD | 416.4 | USD | 313.6 | |
Cost of Sales | USD | 16.9 | USD | 21.3 | |
Franchise and Property Expenses | USD | 33.6 | USD | 33.1 | |
Segment SG+A | USD | 146.9 | USD | 38.0 | |
Segment Depreciation and Amortization | USD | 12.0 | USD | 12.7 | |
Adjusted Ebitda(1) | USD | 231.0 | USD | 233.9 |
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For the third quarter of 2018, system-wide sales growth was driven by net restaurant growth of 6.1 percent and comparable sales of 1.0 percent, including US comparable sales of (0.7) percent.
Under Previous Standards, Total Revenues for the quarter grew 0.6 percent (3.3 percent excluding the impact of FX movements) versus prior year results, reflecting system-wide sales growth, partially offset by an unfavorable FX impact.
Under Previous Standards, Adjusted Ebitda for the quarter grew 5.1 percent on an organic basis versus prior year results, reflecting system-wide sales growth.
PLK Segment Results
(unaudited and USD in millions) | Q3/2018 | Q3/2017 | |||
New Standard | Previous Standard | ||||
System-wide Sales Growth | 7.9% | 4.5% | |||
System-wide Sales | USD | 956.4 | USD | 897.3 | |
Comparable Sales | 0.5% | (1.8)% | |||
Net Restaurant Growth | 7.6% | 5.9% | |||
System Restaurant Count at Period End | 3,022 | 2,809 | |||
Sales | USD | 19.8 | USD | 22.7 | |
Franchise and Property Revenues | USD | 85.2 | USD | 45.3 | |
Total Revenues | USD | 105.0 | USD | 68.0 | |
Cost of Sales | USD | 16.1 | USD | 17.8 | |
Franchise and Property Expenses | USD | 2.4 | USD | 2.2 | |
Segment SG+A | USD | 47.5 | USD | 12.8 | |
Segment Depreciation and Amortization | USD | 2.5 | USD | 1.6 | |
Adjusted Ebitda(1) | USD | 41.5 | USD | 36.8 |
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For the third quarter of 2018, system-wide sales growth was driven by net restaurant growth of 7.6 percent and comparable sales of 0.5 percent, including US comparable sales of (0.2) percent.
Under Previous Standards, Total Revenues for the quarter grew 2.9 percent (3.6 percent excluding the impact of FX movements) versus prior year results, reflecting system-wide sales growth.
Under Previous Standards, Adjusted Ebitda for the quarter grew 20.9 percent on an organic basis versus prior year results, reflecting system-wide sales growth as well as effective cost management.
Cash and Liquidity
As of September 30, 2018, total debt was USD 12.2 billion, and net debt (total debt less cash and cash equivalents of USD 1.1 billion) was USD 11.1 billion. The RBI Board of Directors has declared a dividend of USD 0.45 per common share and partnership exchangeable unit of Restaurant Brands International Limited Partnership for the fourth quarter of 2018. The dividend will be payable on January 4, 2019 to shareholders and unitholders of record at the close of business on December 17, 2018.