Despite the macroeconomic headwinds faced by Burger King Holdings Inc. (BKC), the second largest hamburger chain after McDonald’s Corporation (MCD), its second-quarter 2010 profit climbed 13% year-over-year to $50.2 million on the heels of “Value Menu” offerings and favorable currency movements.

Consequently, the shares of Burger King rose about 6.5% on an overall down day in the market as of mid-day Thursday.

Zacks Consensus versus Quarterly Earnings

Burger King’s quarterly earnings of 37 cents a share comfortably surpassed the Zacks Consensus Estimate of 34 cents, and rose 12% from 33 cents delivered in the prior-year quarter. In the last 7 days, the Zacks Consensus Estimate has fallen about 3% with 2 out of 20 analysts covering the stock lowering their estimates substantially.

Burger King’s quarterly earnings outperformed the Zacks Consensus Estimate by 9%. The company’s earnings surprise history for the preceding four quarters varies between negative 11% and positive 30%, with the average being positive 4%.

Quarterly Performance

Burger King’s total revenue for second-quarter 2010 rose 2% to $645.4 million due to the favorable impact of currency movements and a net increase in the number of franchise restaurants, partly offset by a fall in comparable sales. Company restaurant revenue inched up 1% to $476.9 million; franchise revenue climbed 5% to $140.3 million, whereas property revenue grew 3% to $28.2 million.

By geographic segment, revenue in U.S. & Canada dropped marginally by 1% to $429.1 million, EMEA/APAC jumped 9% to $187.9 million and Latin America rose 4% to $28.4 million.

Comparable sales for the quarter slid 2% in the quarter after declining 2.9% in first-quarter 2010, showing a slight improvement, but still remained affected by lower discretionary spending and raging discounting wars among restaurant operators to attract consumers. This has toughened the competition Burger King has to face from Yum! Brands, Inc. (YUM), Chipotle Mexican Grill, Inc. (CMG) and McDonald’s.

However, traffic improved sequentially, buoyed by its $1 double-cheeseburger promotion. In the year-ago quarter, Burger King had reported positive comps of 2.9%.

By geographic segment, comps were: U.S. & Canada down 3.3%, EMEA/APAC up 0.9% and Latin America down 2.6%.

Total company restaurant margins expanded 20 basis points to 13.8%, driven by lower food, paper and product costs. Sequentially, restaurant margins improved 80 basis points. Restaurant margins increased 160 basis points to 14.4% in the U.S. & Canada, fell 280 basis points to 11.4% in EMEA/APAC, and dropped 30 basis points to 21% in Latin America.

During the quarter, 95 net new restaurants were opened, of which nearly 90% were opened outside the U.S. & Canada. Management expects to open 250 to 300 net new restaurants in fiscal year 2010. Burger King currently operates more than 12,000 restaurants world-wide.

We think the stock provides relative safety and moderate growth in a turbulent environment and exposure to faster-growing international markets, which are central to Burger King’s expansion plans. However, adversely affecting the company’s growth is sagging same-store sales.

Read the full analyst report on “BKC”
Read the full analyst report on “MCD”
Read the full analyst report on “YUM”
Read the full analyst report on “CMG”
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