Should You Take a Bite of This Fast Food Chain?
Burger King reported better-than-expected earnings for the fourth quarter of 2013 on Thursday, and the company seems to be moving in the right direction in terms of restructuring the business and increasing profitability. Should you take a bite of this fast food chain?
Moving in the right direction
Burger King has been going through a transformation process during the last several years, and management's efforts are baring visible results. The company's store base is now fully franchised, which should provide more stability and predictability for cash flows in the coming years.
Burger King is also revamping its stores, which, according to management, can increase sales by between 10% and 15% at remodeled locations. Menu innovation has been the weapon of choice for competitors in the fast food industry lately, and Burger King has scored a big victory with its lower-calorie french fries, Satisfries. Premium products like its BBQ Rib sandwich and Big King sandwich are not only positive for sales, but also in terms of profitability contribution.
Systemwide sales increased by 5.7% in the fourth quarter of 2013 on the back of a 1.7% increase in comparable sales. Most of that growth is coming from international markets, though: The U.S. and Canada region is delivering lackluster performance, with a 0.2% increase in comparable sales during the quarter.
On the other hand, recent improvements have been quite beneficial for the company in terms of profitability. Adjusted EBITDA grew 10% on an organic basis during the quarter, and adjusted earnings per share jumped by a remarkable 22.4%, to $0.84 per share, $0.01 above analyst estimates.
McDonald's is delivering uninspiring growth rates lately, global comparable sales fell by 0.1% during the fourth quarter as a higher average check was not enough to compensate for negative comparable guest counts. Menu innovations like McWrap and Mighty Chicken Wings have not produced the desired response from customers, so the company will need to step up its efforts in the coming quarters if it intends to reinvigorate sales and recover.
Comparable sales performance was particularly week in the U.S. during January, with a 3.3% decline. Weather conditions may be partially responsible for such a dismal performance, but the company is still not showing any signs of a sustainable turnaround at this stage.
Yum! Brands has seen some important improvement signs in China during the December quarter, and this is a big positive for the company as it may indicate that the situation in KFC China is slowly turning around after the negative impact from safety concerns regarding its poultry suppliers in the country.
In the U.S., on the other hand, things are not looking well for Yum! Brands: Same-store sales fell by 2% during the last quarter of 2013 on the back of a 4% decline at Pizza Hut and a 5% fall at KFC. Taco Bell is doing better though, as it reported its eighth consecutive quarter of same-store sales growth with a 1% increase for the quarter.
Wendy's is in the midst of a turnaround, restructuring its operations via increased franchising, revamping stores to generate an improved customer experience, and focusing on innovation with products like its successful Pretzel Bacon Cheeseburger and Pretzel Pub Chicken sandwich.
According to the company's preliminary results, North America same-restaurant sales increased by 3.1% in the fourth quarter of 2013, and management is expecting same-restaurant sales growth of between 2.5% and 3.5% for 2014. Like Burger King, Wendy´s seems to be gaining market share versus larger rivals like McDonald's and Yum! Brands via menu innovations and improved operations.
Revenue growth is quite uninspiring in the U.S., but Burger King seems to be gaining market share versus giants like McDonald's and Yum! Brands, while at the same time generating sound performance in international markets. Besides, management is proving its ability to deliver growing profitability and successful menu innovation, a key competitive factor in the industry. The fast food industry is a very challenging business, but Burger King looks like a tasty option to pick from the menu.
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The article Should You Take a Bite of This Fast Food Chain? originally appeared on Fool.com.Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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