Restaurant Brands reported continued earnings growth for the second quarter of 2017. The company delivered strong net unit growth at each of its three brands and significantly improved Popeyes’ cost structure in its first full quarter of ownership. Same-store-sales growth was mixed, as Burger King returned to growth and Tim Hortons results modestly declined.
Same-store-sales this quarter showed strong growth of nearly 4% at Burger King, with 3% growth in the U.S. as the company struck a better balance between value and premium offerings. Tim Hortons’ same-store-sales declined just under 1%, due to weakness in its baked goods offerings and lunch day part. A recent public dispute with a group of franchisees may have also contributed to the decline this quarter. We believe the company is taking the appropriate steps to improve franchisee relationships and expect that the recent introduction of espresso-based drinks and a new mobile app will enhance future sales.
Net units grew 6%, the highest rate in several years, reflecting strong growth across all of the brands. The company also announced an agreement with an existing Burger King franchisee to develop Tim Hortons restaurants in Spain, which represents the brand’s fourth international development agreement.
As a result of same-store-sales and net unit growth, Restaurant Brands’ organic revenue grew 6%. The company also continued to reduce costs, most notably at Popeyes, where margins increased by nearly 1,500 basis points. As a result of strong top line growth and cost reduction, Restaurant Brands grew organic EBITDA 9% this quarter. Reported EBITDA grew 6%, due to the headwind from the strengthening U.S. dollar.
We sold approximately 25% of our stake in QSR as its strong price appreciation year-to-date, and over the last 12 months, made it a disproportionately large percentage of the portfolio.
From Bill Ackman (Trades, Portfolio)'s second quarter 2017 shareholder letter.
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