Wendy’s/Arby’s Group, Inc. (WEN), the third largest fast-food restaurant operator, recently reported better-than-expected fourth-quarter 2009 results. The quarterly earnings of 7 cents a share surpassed the Zacks Consensus Estimate of 3 cents, and rose 40% from 5 cents a share delivered in the prior-year quarter.

In the third and second quarters of 2009, WEN’s earnings were in line with the consensus estimate. However, in the first quarter, earnings missed the consensus estimate by 66.7%.

On a reported basis, the company delivered a quarterly loss of 3 cents a share, a substantial improvement from a loss of 84 cents posted in the year-ago quarter.

Wendy’s/Arby’s Group has undertaken a massive remodeling program, and is also investing to improve Wendy’s breakfast line-up and expand Arby’s Value Menu offerings to drive traffic and improve sales. The company expanded the $1 Value Menu to more than 2,500 Arby’s restaurants, after its $5.01 combo meals failed to gain traction. Wendy’s also rolled out additional Value Menu offerings. Wendy’s/Arby’s Group, which competes with big players like McDonald’s Corporation (MCD) and Burger King Holdings Inc. (BKC), is trying to lure budget-constrained consumers.

Total revenue grew marginally by 0.5% year-over-year to $900.9 million. Sales from company-operated restaurants inched up 0.1% to $802.9 million and franchise revenue rose 3.5% to $98.1 million.

The quick-service food chain said that adjusted EBITDA soared 38.9% to $103.3 million, whereas adjusted EBITDA margin expanded 320 basis points to 11.5%. For fiscal year 2010, management hinted at an adjusted EBITDA growth in the low to mid-single-digit range with a mid-teens growth expected in fiscal 2011.

Wendy’s/Arby’s Group was formed through the merger of Triarc, the franchisor of the Arby’s restaurant chain, and Wendy’s, the owner-operator-franchiser of the eponymous fast food chain, which was completed in September 2008.

Wendy’s Operating Highlights

Wendy’s total revenue for the quarter rose 4.1% to $630.2 million. Company-operated restaurants sales grew 3.9% to $551.3 million, whereas franchise revenue climbed 5.7% to $78.8 million.

The company-operated comparable-store sales dropped 3.1%, excluding the effect of approximately 300 fewer Wendy’s restaurants serving breakfast compared to the prior-year quarter. Including the effect of breakfast removal, comps fell 4.1%. Franchise comparable-store sales tumbled 2.6%. Wendy’s expects fiscal 2010 comparable-store sales to be positive. In January 2010, comps inched up 0.3%.

Company-operated restaurant margin for the quarter expanded 420 basis points to 15.9%, reflecting a fall in commodity costs, operational efficiencies in labor and certain controllable costs, and rise in price.

The company’s full-year restaurant margins jumped 330 basis points to 14.9%, which was more than half of the company’s three-year target of 500 basis points increment in restaurant margin.

Wendy’s ended fiscal year 2009 with 6,541 restaurants.

Arby’s Operating Highlights

Arby’s total revenue for the quarter fell 7% to $270.8 million due to lower comparable-store sales. Company-operated restaurants sales declined 7.1% to $251.6 million, whereas franchise revenue slipped 4.8% to $19.2 million.

The company-operated comparable-store sales dipped 12.6%, whereas franchise comparable-store sales plunged 10.2%. However, the initiatives taken by the company and television advertising have helped improve sales in January 2010. The fall in comps narrowed to 7.4% in January. Arby’s still expects fiscal 2010 comparable-store sales to remain negative, but expects it to improve on a year-on-year basis.

Company-operated restaurant margin for the quarter contracted 40 basis points to 14.2%. Arby’s ended fiscal year 2009 with 3,718 restaurants.

Wendy’s/Arby’s Group Financial Aspects

Wendy’s/Arby’s Group ended fiscal year 2009 with cash and cash equivalents of $591.7 million, long-term debt of $1,500.8 million and shareholders’ equity of $2,336.3 million.

Capital expenditure for the year aggregated $101.9 million. Management expects capital expenditure of $165 million in fiscal 2010.

As of Feb 26, 2010, Wendy’s/Arby’s Group had repurchased 26.1 million shares, aggregating $120.2 million at an average price of $4.61 each under its $200 million share repurchase authorization. The company has $79.8 million remaining under the authorization.

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