RBI: Reports Third Quarter 2018 Results

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.

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