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Restaurant Brands International Inc. (QSR): Delivering Consistent Growth Across Its Iconic Brands
Published on September 24, 2024 | Ticker: QSR

Restaurant Brands International Inc. (QSR) is a Canadian corporation that serves as the indirect holding company for the entities that own and franchise the Tim Hortons®, Burger King®, Popeyes®, and Firehouse Subs® brands. The company is one of the world's largest quick service restaurant (QSR) companies, with over $40 billion in annual system-wide sales and over 30,000 restaurants in more than 120 countries and territories as of March 31, 2023.

Financials

In the first quarter of 2023, Restaurant Brands International reported consolidated revenues of $1,739 million, up from $1,590 million in the same period of the prior year. The company's net income for the quarter was $328 million, compared to $277 million in the first quarter of 2022. Operating cash flow for the quarter was $148 million, and free cash flow was $122 million.

Brand Performance

The company's strong performance in the first quarter was driven by solid results across its four iconic brands. Tim Hortons in Canada reported a 7.5% increase in comparable sales, including mid-single-digit traffic growth and 8.3% growth in system-wide sales. The brand's focus on operational and digital improvements, as well as a strong marketing calendar, contributed to these impressive results.

Burger King's U.S. operations saw a 3.9% increase in comparable sales, with the brand's Reclaim the Flame initiatives, including marketing focused on its core equities and strong value messaging, driving these positive results. The company's Popeyes brand in the U.S. and Canada also delivered a strong quarter, with a 6.2% increase in comparable sales and 4.0% net restaurant growth, reflecting the brand's momentum as a player in the wings category.

Firehouse Subs reported relatively flat comparable sales in the U.S., but the brand saw a 3.3% increase in system-wide sales, as the company remains focused on driving development and strengthening its digital leadership.

International Operations

Internationally, Restaurant Brands International's operations saw a 4.2% increase in comparable sales and 8.4% net restaurant growth, with positive results in markets such as France, Brazil, Mexico, Australia, and Japan, partially offset by softer consumer demand in China and the impact of the conflict in the Middle East.

The company's adjusted operating income for the first quarter of 2023 was $540 million, up from $505 million in the same period of the prior year, representing a 7.7% increase. This growth was driven by strong underlying performance across the company's segments, partially offset by higher bad debt expenses and increased segment general and administrative expenses.

Outlook

Looking ahead, Restaurant Brands International provided updated guidance for 2023, including a reduction in expected segment general and administrative expenses to between $665 million and $685 million, including equity-based compensation of $180 million to $190 million. The company also expects consolidated capital expenditures, tenant inducements, and incentives to be around $300 million for the year, up from approximately $170 million in 2022.

Capital Allocation

In terms of capital allocation, the company will continue to invest in high-return opportunities for its business while returning capital to shareholders through its dividend. Over the long term, the company plans to maintain net leverage between 3 and 5 times.

Recent Developments

The company also announced the pending acquisition of Carrols Restaurant Group, the largest Burger King franchisee in the U.S., for a total enterprise value of approximately $1.0 billion. This acquisition is expected to be completed in the second quarter of 2023 and will be financed with cash on hand and term loan debt.

Conclusion

Overall, Restaurant Brands International's strong performance in the first quarter of 2023, coupled with its updated guidance and strategic initiatives, positions the company well to continue delivering consistent growth across its iconic brands and creating value for its shareholders.

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