Burger King Worldwide, Inc. Reports Third Quarter 2012 Results

Burger King Worldwide, Inc. Reports Third Quarter 2012 Results

Burger King Worldwide Reports Fifth Consecutive Quarter of System-wide Comparable Sales Growth and Initiates Quarterly Cash Dividend

MIAMI--(BUSINESS WIRE)-- Burger King Worldwide, Inc. (NYS: BKW) today reported financial results for its third quarter ended September 30, 2012.

Third Quarter Highlights:

  • System-wide comparable sales increased 1.4% and system-wide sales increased 3.9% on a constant currency basis
  • Adjusted EBITDA increased 6% on an organic basis to $162.0 million
  • Adjusted Diluted EPS increased 11% to $0.17
  • Refinanced Term Loan B, lowering annualized cash interest costs by approximately $25 million
  • Initiated new quarterly cash dividend of $0.04 per share

BKW Chief Executive Officer Bernardo Hees said, "We completed our first full quarter as a public company with continued positive momentum despite the challenging global economic environment. BKW is fortunate to have one of the most widely recognized and resilient brands in the global QSR industry and we are proud of the hard work and dedication of our employees and franchisees who are striving to deliver a strong finish to a critical year for the BURGER KING® system. In the U.S. and Canada, we are executing on our four pillar strategy, while internationally we completed additional refranchisings and development agreements that we believe will accelerate restaurant growth in the years to come." Chief Financial Officer Daniel Schwartz added, "We are excited to begin returning cash to our shareholders with the initiation of a quarterly cash dividend, underscoring our confidence in BKW's business model and commitment to disciplined capital allocation."

Consolidated Financial Highlights

 Results Variance
Three Months Ended September 30,$ %
2012 2011Favorable / (Unfavorable)
($ in millions, except per share data)
System-wide Comparable Sales Growth11.4%1.6%
System-wide Sales Growth13.9%3.6%
Net Restaurant Growth635946.8%
Total Revenues$451.1$607.7($156.6)(25.8%)
Adjusted EBITDA2$162.0$161.0$1.00.6%
Adjusted EBITDA Margin235.9%26.5%nm9.4%
Adjusted Net Income2$61.1$54.2$6.912.7%
Adjusted Diluted Earnings Per Share2$0.17$0.16$0.0210.6%
Net Income$6.6$38.8($32.2)(83.0%)
Diluted Earnings Per Share$0.02$0.11($0.09)(83.3%)

(1) System-wide comparable sales growth and system-wide sales growth are calculated on a constant currency basis and include sales at franchise restaurants and company-owned restaurants.

(2) Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Diluted Earnings Per Share are non-GAAP financial measures. Please refer to "Non-GAAP Reconciliations" for further detail.

Organic revenue growth was 0.2%, excluding the impact of refranchising and FX headwinds. On a reported basis, total revenues decreased 25.8% to $451.1 million, compared to $607.7 million in the prior year period due to refranchising transactions in the U.S. and Canada, EMEA and APAC as well as unfavorable FX impact, partially offset by comparable sales growth and increased franchise and property revenues.

Organic Adjusted EBITDA growth was 6.3%, excluding the impact of refranchising and FX headwinds. On a reported basis, Adjusted EBITDA increased 0.6% to $162.0 million, compared to $161.0 million in the prior year period. Organic growth was driven by comparable sales and net restaurant growth, as well as G&A cost control, while growth was lower on a reported basis due to significant progress on our global refranchising initiative and FX headwinds primarily related to a weaker Euro. Year to date, Adjusted EBITDA grew 11%.

Adjusted net income and Adjusted Diluted EPS increased 12.7% and 10.6%, respectively, compared to the prior year, primarily due to an increase in Adjusted EBITDA, lower Depreciation and Amortization and lower interest expense. Year to date, Adjusted Net Income increased 26% and Adjusted Diluted EPS grew 25%.

Operational and Segment Highlights

System-wide comparable sales growth was positive across all segments except APAC. The U.S. and Canada delivered 1.6% comparable sales growth driven by the company's Summer BBQ and Chicken offerings. The company was pleased with the results of its limited time offerings and progress in attracting a more diverse customer base, but experienced a deceleration in comparable sales growth due to more challenging prior year comparisons and the loss of some value based traffic.

EMEA delivered comparable sales growth of 1.8%, driven by double digit comparable store sales growth in the company's expanding Russian market, continued success of "Kings of the Day" promotions in the United Kingdom, and "King of the Month" deals in Germany. Performance in Southern Europe was softer, with the company's key Spain market showing deceleration as economic conditions deteriorated during the quarter.

Latin America and the Caribbean ("LAC") delivered comparable sales growth of 2.7%, despite challenging prior year comparisons in each of the company's key markets. BKW has implemented new value initiatives in Brazil and Mexico in October to balance its menu options and complement premium offerings such as the Picanha burger in Brazil, and is seeing initial signs of success in driving incremental traffic.

APAC comparable sales declined by 2.2%, driven by weaker results in Australia and Korea as well as a particularly challenging prior year comparison in New Zealand, which hosted the rugby world cup in 2011.

As part of BKW's global refranchising strategy, the company refranchised 221 company-owned restaurants during the quarter, including 182 restaurants in the U.S. and 39 restaurants internationally. In connection with this quarter's refranchising transactions, BKW received cash proceeds of $31.6 million, development commitments both domestically and internationally, and domestic re-imaging commitments for 356 restaurants.

As part of BKW's international expansion strategy, the company announced new Master Franchise and Development agreements with our existing Malaysian franchisee, Rancak Selera, to support the acceleration of restaurant growth in Singapore and Malaysia. Rancak Selera is a portfolio company of Ekuiti Nasional Berhad (Ekuinas), a government-linked private equity fund management company established to create the next generation of leading Malaysian companies. In connection with the Master Franchise and Development agreements, BKW refranchised 38 restaurants in Singapore to Rancak Selera and received a development commitment that is expected to more than double the BURGER KING® brand's restaurant count in Singapore and Malaysia over the next 5 years.

Cash and Liquidity

At quarter end, total debt was $3.1 billion and net debt was $2.6 billion. During the quarter, BKW refinanced its existing Term Loan B facility with a new $1,735 million Term Loan A and Term Loan B facility. The new Term Loan A pays interest at LIBOR plus 2.25% and the new Term Loan B pays interest at LIBOR plus 2.75% with a 1.00% LIBOR floor. As a result of the refinancing transaction and based on three month LIBOR at the time of closing, BKW expects to realize annualized cash interest savings of approximately $25 million. Due to the improvement in net debt and in trailing twelve month Adjusted EBITDA, the net debt to Adjusted EBITDA ratio improved to 4.1x at September 30, 2012 from 4.6x at December 31, 2011.

Initiation of Quarterly Cash Dividend

The company also announced that its Board of Directors has approved the initiation of a quarterly cash dividend. On October 28, 2012, the Board declared the company's first quarterly cash dividend of $0.04 per share, which will be paid on November 29, 2012 to shareholders of record at the close of business on November 9, 2012. Future dividends will be determined at the discretion of the Board of Directors.

Investor Conference Call

The company will host an investor conference call and webcast at 9:00 a.m. EDT, Monday, October 29, 2012, to review financial results for the quarter ended September 30, 2012. The earnings call will be broadcast live via the company's investor relations website at http://investor.bk.com and will be available for replay. The dial-in number is 866.244.6521 for U.S. callers and 703.639.1157 for international callers.

About Burger King Worldwide

Founded in 1954, BURGER KING® (NYS: BKW) is the second largest fast food hamburger chain in the world. The original HOME OF THE WHOPPER®, the BURGER KING® system operates in over 12,600 locations serving over 11 million guests daily in 83 countries and territories worldwide. Approximately 95 percent of BURGER KING® restaurants are owned and operated by independent franchisees, many of them family-owned operations that have been in business for decades. To learn more about Burger King Worldwide, please visit the company's website at www.bk.com or follow us on Facebook and Twitter.

Forward-Looking Statements

This press release contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. These forward-looking statements include statements about the company's expectations and belief regarding its ability to deliver a strong finish to a critical year for the BURGER KING® system; its expectations and belief regarding its ability to execute on its four pillar strategy in the U.S. and Canada and accelerate restaurant growth internationally; its expectations and belief regarding the cash flow generated by its business model and its ability to achieve annualized cash interest savings of approximately $25 million; its expectations and belief regarding the company's ability to drive incremental traffic in Brazil and Mexico and its expectations regarding its ability to double its restaurant count in Singapore and Malaysia over the next five years. The factors that could cause actual results to differ materially from the company's expectations are detailed in the company's filings with the Securities and Exchange Commission, such as its annual and quarterly reports and current reports on Form 8-K, including the following:risks related to the company's ability to successfully implement its domestic and international growth strategy; risks related to global economic or other business conditions that may affect the desire or ability of customers to purchase the company's products;risks related to the financial strength of the company's franchisees; risks related to the company's substantial indebtedness; risks related to the company's ability to compete domestically and internationally in an intensely competitive industry; and risks related to the effectiveness of the company's marketing and advertising programs.

Condensed Consolidated Statements of Operations
Three Months Ended
September 30,Increase / (Decrease)
(In millions, except per share data)
Company restaurant revenues$244.6$422.8$(178.2)(42.1)%
Franchise and property revenues 206.5 184.9  21.6 11.7%
Total revenues451.1607.7(156.6)(25.8)%
Company restaurant expenses:
Food, paper and product costs79.7134.9(55.2)(40.9)%
Payroll and employee benefits71.9122.3(50.4)(41.2)%
Occupancy and other operating costs 64.7 113.0  (48.3)(42.7)%
Total Company restaurant expenses216.3370.2(153.9)(41.6)%
Franchise and property expenses34.725.39.437.2%
Selling, general and administrative expenses76.0103.3(27.3)(26.4)%
Other operating (income) expense, net 30.3 (2.7) 33.0 NM
Total operating costs and expenses 357.3 496.1  (138.8)(28.0)%
Income from operations 93.8 111.6  (17.8)(15.9)%
Total interest expense, net57.359.4(2.1)(3.5)%
Loss on early extinguishment of debt 23.0 -  23.0 NM
Income before income taxes13.552.2(38.7)(74.1)%
Income tax expense 6.9 13.4  (6.5)(48.5)%
Net income$6.6$38.8 $(32.2)(83.0)%
Earnings per share:
Basic$0.02$0.11 $(0.09)(83.1)%
Diluted$0.02$0.11 $(0.09)(83.3)%
Weighted average shares outstanding
Basic 350.0 348.3  1.7 0.5%
Diluted 355.0 348.3  6.8 1.9%
NM - not meaningful
Condensed Consolidated Statements of Operations
Nine Months Ended
September 30,Increase / (Decrease)
(In millions, except per share data)
Company restaurant revenues$986.7$1,234.3$(247.6)(20.1)%
Franchise and property revenues 575.1 520.8 54.3 10.4%
Total revenues1,561.81,755.1(193.3)(11.0)%
Company restaurant expenses:
Food, paper and product costs324.7397.3(72.6)(18.3)%
Payroll and employee benefits291.6364.5(72.9)(20.0)%
Occupancy and other operating costs 259.7 334.3 (74.6)(22.3)%
Total Company restaurant expenses876.01,096.1(220.1)(20.1)%
Franchise and property expenses87.071.615.421.5%
Selling, general and administrative expenses266.8303.0(36.2)(11.9)%
Other operating (income) expense, net 26.2 9.8 16.4 NM
Total operating costs and expenses 1,256.0 1,480.5 (224.5)(15.2)%
Income from operations 305.8 274.6 31.2 11.4%
Total interest expense, net173.6165.77.94.8%
Loss on early extinguishment of debt 34.2 19.6 14.6 74.5%
Income before income taxes98.
Income tax expense 28.9 26.2 2.7 10.3%
Net income$69.1$63.1$6.0 9.5%
Earnings per share:
Basic$0.20$0.18$0.02 9.1%
Diluted$0.20$0.18$0.01 7.9%
Weighted average shares outstanding
Basic 349.4 348.2 1.2 0.4%
Diluted 353.3 348.2 5.2 1.5%
NM - not meaningful
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