Updated Research Report on Burger King - Analyst Blog

On Mar 14, 2014, we issued an updated research report on Burger King Worldwide, Inc. BKW.

On Feb 13, this leading restaurateur reported fourth quarter results. Earnings were in line with the Zacks Consensus Estimate while revenues missed the same marginally.

Burger King's adjusted earnings per share of 23 cents were flat year over year owing to lower operating costs and expenses. Total revenue dropped 34.4% year over year to $265.2 million due to currency headwinds, an adverse impact of refranchising, lower company restaurant sales and muted comparable sales (comps) growth.

Quarterly revenues missed the Zacks Consensus Estimate of $267.0 million by 0.7%. Overall comps in the quarter nudged up 1.7%, higher than third-quarter comps growth of 0.9% but lower than the year-ago quarter's comps of 2.7%.

While most of the restaurant chains in the industry are grappling with margin pressure owing to cost inflation as well as excessive focus on value-driven offerings, Burger King's performance on the margin front is worth mentioning. EBITDA margin for the year was 58.1%, far better than 33.1% in 2012.

Moreover, EBITDA margin increased consistently throughout the year from 44.0% in the first quarter of 2013 to 69.0% in the fourth quarter of 2013. This uptrend reflects the company's disciplined cost management and the adoption of a zero-based budgeting program that helped it to generate cost savings.

Moreover, the company safeguards its position and growth prospects amid a sluggish macro-environment through its focus on franchising. Burger King is transitioning its business model through new product introductions, restaurant upgrades, a proper marketing mix and improved operations. Exposure to faster-growing international markets is the key to Burger King's expansion plans.

However, weak consumer spending is a matter of concern for this Zacks Rank #3 (Hold) company. U.S. consumers are burdened with higher gasoline prices, payroll tax increases and delayed tax refund checks that limits discretionary spending. Also, rising food costs keep us concerned as it would hurt margins, going forward.

Some better-ranked stocks in the restaurant industry include Ignite Restaurant Group, Inc. IRG, The Wendy's Co. WEN and Brinker International, Inc. EAT. While Ignite Restaurant Group and Wendy's carry a Zacks Rank #1 (Strong Buy), Brinker International holds a Zacks Rank #2 (Buy).