Why are restaurant brands (QSRs) down 9.5% since the last earnings report?

It’s been about a month since Restaurant Brands (QSR) last reported earnings. Shares have lost about 9.5% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Restaurant Brands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Top estimates for restaurant brands’ first-quarter earnings and revenue

Restaurant Brands reported first-quarter 2024 results, and earnings and revenue surpassed the Zacks Consensus Estimate. Although the bottom line declined year-over-year, the bottom line increased on the back of solid system-wide sales across all segments.

Discussion about earnings and revenues

For the quarter, QSR reported adjusted earnings per share of 73 cents, topping the Zacks Consensus Estimate of 72 cents. Financial results fell 2% from 75 cents reported in the prior-year quarter.

Quarterly net revenue of $1.74 billion topped the consensus estimate of $1.71 billion. Year-on-year, revenues increased by 9.4%. Strong sales growth across the system contributed to the positive result. According to reports, this was partially offset by unfavorable changes in currency rates.

During the quarter, global system sales increased 8.1% year-over-year.

Segment revenues

Restaurant Brands operates in five segments – Tim Hortons (TH), Burger King (BK), Popeyes Louisiana Kitchen (PLK), Firehouse Subs (FHS) and International (INTL).

In the first quarter, Tim Hortons’ revenue was $939 million, up 5.1% from the previous quarter’s level. System-wide sales increased 7.8% year-over-year compared to 16.1% growth reported in the prior-year quarter. Comps increased 6.9% year-over-year compared to 14.9% a year earlier.

Burger King’s revenue was $350 million, up 17.9% from the previous quarter. System-wide sales increased 2.6% year-over-year compared to 8.5% growth reported in the prior-year quarter. Comps grew 3.8% year-over-year compared to 8.7% growth in the prior-year quarter. Net restaurant growth declined 2.4% year-over-year compared to a 1.3% decline reported in the prior-year quarter.

Popeyes Louisiana Kitchen generated revenue of $178 million, an increase of 11.5% from year-ago levels. Systemwide sales growth was 10.4% year-over-year, compared to 9.6% growth reported in the prior-year quarter. Comps grew 5.7% year-over-year compared to the 3.6% growth reported in the prior-year quarter. Restaurant net growth was 4.7% year-over-year compared to 6.3% a year earlier.

Firehouse Subs reported revenue of $50 million, up 33.9% from year-ago levels. Systemwide sales growth was 4.3% compared to 8.7% recorded in the prior-year quarter. Net restaurant growth was 3.6% compared to 2.2% in the year-ago quarter. Comps increased 0.3% year-over-year compared to the 6.2% increase reported in the prior-year quarter.

First quarter revenues from the international segment were $222 million, up 9.7% year-over-year. Systemwide sales growth was 11.6% year-over-year compared to 21.6% growth reported in the prior-year quarter. Comps grew 4.2% year-over-year compared to the 12.6% growth reported in the prior-year quarter. Restaurant net growth was 8.4% year-over-year, compared to 8.9% growth a year earlier.

Operational efficiency

For the quarter, adjusted EBITDA was $627 million, compared to $588 million reported in the prior-year quarter. According to reports, the growth was driven by an increase in adjusted EBITDA across all segments.

On a segment basis, Tim Horton’s adjusted EBITDA increased 5.6% year over year to $262 million. Burger King’s adjusted EBITDA increased 8.9% year over year to $125 million. Popeye’s adjusted EBITDA was $67 million, up 13.7% year-over-year. For the quarter, adjusted EBITDA of Firehouse Subs units was $14 million, up 8.3% year-over-year. International segment adjusted EBITDA was $159 million, up 3.9% year-over-year.

Cash and capital

Restaurant Brands ended the first quarter of 2024 with a balance of cash and cash equivalents of $1 billion, compared to $1.1 million at the end of 2023. As of March 31, 2024, long-term debt (excluding the current portion) was USD 12.8 billion compared to USD 12.9 billion at the end of 2023.

QSR’s board of directors has announced a dividend of 58 cents per share of common and interchangeable shares of Restaurant Brands International Limited Partnership in the second quarter of 2024. The dividend will be paid on July 5, 2024 to stockholders of record at the end of business as of June 21, 2024 r.

Long-term guidelines (2024-2028)

On February 15, 2024, the company disclosed long-term consolidated expectations for results in 2024-2028. It anticipates achieving over 3% growth in comparable sales and at least 5% net growth for restaurants. QSR forecasts system-wide sales growth in excess of 8%, with adjusted operating income expected to grow at a rate equal to or greater than system-wide sales

How have estimates changed since then?

Over the last month, investors have seen a downward trend in estimate revisions.

VGM results

Restaurant Brands currently has a Weak Growth Score of F, but its Momentum Score is performing much better at C. Following the exact same trajectory, the stock is rated C on the Value side, placing it in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Restaurant Brands has a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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