Will Burger King Again Be The Revenue Driver For Restaurant Brands International In The First Quarter?

Restaurant Brands International (NYSE: QSR) is set to release its first quarter earnings on April 24, wherein a 15% growth in revenue and a whopping 55% improvement in earnings is expected. This growth is expected to be led by continued growth in Burger King (BK), as well as a result of the acquisition of Popeyes Louisiana Kitchen (PLK), which was completed in March of last year. The performance of Tim Hortons (TH) disappointed in 2017, as a result of a highly competitive quick service restaurant industry in the U.S., which the company hopes to turn around. We will be closely watching the results of this segment, as it forms over one-half of the company’s valuation, according to our estimates.

We have a $72 price estimate for Restaurant Brands International, which is higher than the current market price. The charts have been made using our new, interactive platform. The various driver assumptions can be modified by clicking here, to gauge their impact on the earnings and price per share metrics.

Key Factors That May Impact The Performance

1. Positive Industry Environment:  The overall restaurant industry environment has been positive for the quarter ended March 2018. While comparable traffic declined, comparable sales have been positive on the back of higher average checks. In March, same-store sales growth was 0.8 percent, the second-best month for restaurant industry sales growth over the last two years. While fine dining and upscale casual restaurants have consistently shown sales growth, casual dining and fast casual struggled heavily in 2017. This trend seems to be reversing, as this segment has shown signs of recovery this year, recording positive sales in the first quarter of 2018. This should benefit Restaurant Brands.

2. Expansion of Burger King: RBI is focused on expanding its Burger King chain and is entering into several franchisee agreements to fulfill this goal. Recently the company announced a financial agreement with private equity giant Bridgepoint to expand in the U.K. This agreement was followed by a master franchise agreement with Nexus Point in Taiwan and another master franchise agreement to expand its presence in the Netherlands. Faster growth of the Burger King Chain can become a key driver of revenues for RBI.

3. Focus On Tim Hortons Growth: The Tim Hortons segment holds strong growth potential for RBI. However, the company’s issues with the franchisees of TH are not showing any signs of respite. While franchisees have been blaming RBI management for cost cutting measures, they are now caught in a minimum wage dispute. Resolving the issues with TH franchisees is critical for RBI’s future growth. Any growth in this segment can be expected to come from international markets. In 2017, the company opened its first Tim Hortons restaurants in each of Asia, Europe, and Latin America. In the U.K., and the Philippines, TH opened 13 and 10 restaurants in 2017, respectively, and it also opened its first two restaurants in Egypt, Spain, and Mexico. The company has plans for additional openings in 2018.

4. Prospects of Popeye Louisiana Kitchen: Revenue growth from this segment can be expected to come from a higher number of its stores. In 2017, the company opened nearly 120 net new restaurants in the U.S., as well as a first restaurant in South Africa. The company has also signed a master franchise agreement for expansion in Brazil, which calls for opening 300 restaurants in the country over the next ten years.

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