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Holly LaFon
Holly LaFon
Articles (9686)  | Author's Website |

Bill Ackman Comments on Restaurant Brands International

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May 17, 2019 | About:

QSR’s (NYSE:QSR) most recent earnings results continue to reinforce our thesis that the company’s royalty-based, franchise model is a uniquely valuable business with a large, long-term, capital-light, unit-growth opportunity. This quarter, QSR’s unit count expanded by more than 5% while organic EBITDA grew 6% (excluding a 1% headwind from the timing of franchisee ad fund expenditures that temporarily exceeded contributions). Each of QSR’s three brands generated positive organic EBITDA growth with Burger King’s EBITDA up 10%.

Same-store sales grew more than 2% at Burger King and 1% at Popeyes despite difficult comparisons with the prior year. Tim Hortons’ same- store sales were slightly negative this quarter, lower than we expected and below the nearly 2% level last quarter due primarily to adverse weather according to management. While weather is never a favored explanation, management noted that same-store sales have returned to growth since the end of the quarter and were up nearly 2% in April. We believe that Tim Hortons’ same-store sales growth will benefit from the company’s recently implemented loyalty program which was launched a little over a month ago. Nearly 20% of Canadians have already signed up for the program, with roughly 50% of transactions now associated with a loyalty card.

While QSR’s shares have appreciated 28% this year, the shares currently trade at approximately 23 times our estimate of 2019 free cash flow per share, a discount to our view of intrinsic value and to slower-growing franchised-peers such as Yum and McDonalds, which trade at 26 to 27 times analyst estimates of 2019 free cash flow.

On May 15th, QSR hosted its first investor day, at which management highlighted the sustainability of the company’s long-term growth, announced a long-term target of 40,000 units in eight to 10 years, and outlined various initiatives to drive same-store sales growth and franchisee profitability. The stock has responded favorably since the presentation as we believe investors were impressed by management and the greater business transparency provided into the company’s and franchisee underlying business economics.

From Bill Ackman (Trades, Portfolio)'s first-quarter 2019 Pershing Square shareholder letter.

About the author:

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

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