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Holly LaFon
Holly LaFon
Articles (10163)  | Author's Website |

Bill Ackman Comments on Restaurant Brands International

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March 30, 2017 | About:


QSR (NYSE:QSR)’s franchised business model is best described as a capital-light, high-growth annuity. The company earns high-margin, brand royalty franchise fees (4% to 5% of unit sales) from Burger King and Tim Hortons franchisee operated stores which are relatively insulated from economic cycles. As a result of the business’ structure and the market in which it operates, significant unit growth requires no capital from QSR.

The company’s controlling shareholder 3G is an ideal operating partner and sponsor. It has installed an excellent management team and created a unique and impactful performance culture, compensation system, and business processes. We believe 3G’s highly scalable and replicable operating strategy can be applied to potential future acquisition opportunities.

QSR’s intrinsic value meaningfully increased in 2016, as the company continued to deliver strong financial performance: 16% organic EBITDA growth and 45% EPS growth. The high rate of EBITDA growth was driven by 2% Same-Store Sales (SSS) growth at Burger King and 3% at Tim Hortons, 5% net unit growth at both concepts, and continued cost reduction at Tim Hortons. QSR improved Tim Hortons’ EBITDA margins by 500 basis points in 2016, due to margin improvement in both the franchise and distribution businesses and a 12% reduction in overhead costs. QSR’s reported EBITDA grew 13%, including a 3% headwind from foreign exchange.

As a result of the positive business momentum, the total return for Restaurant Brands’ shares was 29.2% in 2016. In February 2017, QSR announced the acquisition of Popeyes Louisiana Kitchen. We believe QSR will be able to meaningfully improve Popeye’s cost structure and significantly accelerate its growth in new units, which will further increase Restaurant Brands’ future earnings growth and intrinsic value.

From Bill Ackman (Trades, Portfolio)'s Pershing Square 2016 annual report.

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Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

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