Mixed Results for Burger King - Analyst Blog

Burger King Holdings Inc.(BKC) posted fourth quarter and full year 2010 adjusted earnings per share of 36 cents and $1.36, respectively, which surpassed the Zacks Consensus Estimates of 34 cents for the fourth quarter and $1.35 for fiscal 2010. However, both fourth quarter and full year earnings dropped 16% and 8% from 43 cents and $1.48 delivered in the comparable year-ago quarter and prior year, respectively.

Fourth Quarter Performance

Burger King’s total revenue plunged 1% year over year to $623.0 million due to the decline in comparable sales given the economic downturn and unfavorable currency translation. The company also missed the Zacks Consensus Estimate of $639 million.

The company restaurant revenues fell 2% to $454.1 million, whereas franchise revenues upped 1% to $140.3 million and property revenues declined 3% to $28.6 million.

By geographic segment, revenues in the U.S. & Canada slumped 2% to $426.9 million; Europe, the Middle East, Africa and Asia Pacific (EMEA/APAC) fell 1% to $167.2 million; and Latin America rose 18% to $28.9 million.

Comparable sales in the quarter dipped 0.7%, reflecting a 1.5% decline in the U.S. & Canada , partially offset by a 3.9% rise in Latin America and 0.2% increase in EMEA/APAC, led by a solid performance across its South American and Asia Pacific markets.

The Miami-based company also indicated that total company restaurant margins contracted 180 basis points to 10.7% due to the leap in occupancy and operating costs and food paper and product costs, partially offset by a fall in payroll & employee benefits. Restaurant margins slashed 180 basis points to 11.7% in the U.S. & Canada and dropped 260 basis points to 6.5% in EMEA/APAC, but spiked up 420 basis points to 19.6% in Latin America.

Adjusted operating income was down 6.0% to $82.8 million, due to a decrease in total revenue.

Fiscal Year Performance

Total revenue dropped 1% year over year to $2,502.2 million and was also below Zacks Consensus Estimate of $2,517.0 million. The slash in revenue was due to the reduction in comparable sales, partly offset by a favorable currency translation and robust restaurant growth. The company restaurant revenues decreased 2% to $1,839.3 million; whereas franchise revenues inched up 1% to $549.2 million and property revenues were flat year over year to $113.7 million.

By geographic segment, revenues in the U.S. & Canada fell 3% to $1,695.2 million; Europe, the Middle East, Africa and Asia Pacific (EMEA/APAC) grew 2% to $698.0 million; and Latin America rose 2% to $109.0 million.

Comparable sales in the quarter dipped 2.3%, reflecting a 3.9% decline in the U.S. & Canada and dropped 1.3% in Latin America . This decrease was due to harsh weather conditions in the U.S, U.K and Germany , which hurt comparable sales in January and February, partially offset by a 0.8% increase in EMEA/APAC.

Total company restaurant margins shrunk 40 basis points to 12.2% due to the increase in occupancy and operating costs, partially offset by a fall in food and labor costs. Restaurant margins expanded 40 basis points to 13.2% in the U.S. & Canada , but fell 260 basis points to 8.6% in EMEA/APAC, and inched down 10 basis points to 19.5% in Latin America .

Financial Position

At the end of fiscal 2010, the fast food hamburger chain raised its cash balance by $66 million, repaid $68 million in debt and capital leases and had a capital expenditure of $150 million.

At the end of the year, Burger King repaid approximately $34.0 million to shareholders through dividends.

Guidance

The world’s second largest fast food hamburger chain, Burger King forecasts fiscal year 2011 to remain challenging due to the continuation of sluggish economy and a weak consumer environment, resulting from the high unemployment rate. As a result, comparable sales are also expected to remain soft.

Burger King whose biggest competitor is McDonald’s Corp. (MCD) stated that it plans to open between 225 and 275 net new restaurants in fiscal 2011, with more than 90.0% of the net restaurant growth expected to take place outside of the United States and Canada. During the fourth quarter, 59 net new restaurants were opened and 249 in fiscal 2010.

About 90% of Burger King’s restaurants are franchisee owned. The company said within the next three to five years, it expects to sell up to half of the remaining company-owned locations to franchise owners.

Management expects capital expenditures in the range of $175 million to $200 million for fiscal year 2011.