Restaurant Brands International Inc. (NYSE:QSR)
Restaurant Brands’ second quarter results showed continued earnings growth as performance at Burger King and Popeyes remained strong, offset somewhat by muted results at Tim Hortons. QSR reported strong unit growth of 6%, as Burger King units increased 6%, Popeyes 7% and Tim Hortons 3%. QSR announced a master franchise agreement to open 1,500 Tim Hortons restaurants in China over the next decade (30% of current Tim’s units), which should accelerate the brand’s long-term unit growth. Same-store sales this quarter grew 2% at Burger King due to strength in promotional offers and product innovation. Popeyes’ same-store sales grew 3% as the brand is experiencing the benefits of a more value-focused menu. Tim Hortons’ same-store sales were flat as growth in breakfast foods and cold beverages was offset by weakness in baked goods and brewed coffee.
QSR is working on a variety of initiatives that should improve same-store sales at Tim Hortons. Recently, the brand launched all-day breakfast. The company’s consumer surveys suggest this could have a meaningful impact on sales as 60% of guests said they would likely buy a breakfast sandwich after 12pm, and one-third said they would likely increase the frequency of their visits. Tim Hortons is also developing a kids’ menu and a loyalty program which management expects to introduce within the next few quarters.
Organic EBITDA grew 4%, as Burger King’s grew 6%, Popeyes’ grew 28%, and Tim Hortons’ declined 1%. Growth at Burger King continues to reflect progress in strong same-store sales, net unit growth and margin enhancement. Popeyes’ growth primarily reflects improved cost efficiencies. The decline at Tim Hortons resulted from lapping the prior year’s sales of new equipment related to the launch of the espresso-based drinks platform, which will no longer be a headwind in future quarters. Overall, QSR’s reported EBITDA grew 6% due to organic growth and a 2% benefit from a weaker USD. EPS grew more than 30% due primarily to the lower financing costs associated with the repayment of the Berkshire preferred stock at the end of last year.
From Bill Ackman (Trades, Portfolio)'s second quarter 2018 Pershing Square shareholder letter.
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