Restaurant Brands 3Q Profit Beats Estimates But Sales Drop; Shares Fall

Restaurant Brands International posted a better-than-feared quarterly profit driven by sales growth at Popeyes, its popular chicken sandwich chain. Shares are down 1.6% in morning trading.

Restaurant Brands (QSR) reported adjusted earnings per share of 68 cents in the third quarter ended Sept. 30, down from 72 cents last year, but beat analysts’ expectations by 5 cents. Total sales dropped 8.3% to $1.34 billion year-on-year in line with the Street consensus.

Restaurant Brands owns popular quick food-service restaurant brands – Tim Hortons, Burger King, and Popeyes – and operates over 27,000 restaurants in more than 100 countries. In the reported quarter, comparable sales at Popeyes surged 17.5% year-on-year, while at Burger King revenue fell 7% and at Tim Hortons it plunged 12.5%.

Separately, Restaurant Brands announced that it plans to modernize drive-thrus at more than 10,000 Burger King and Tim Hortons locations in North America by mid-2022, with Popeyes beginning its own rollout later this year.

“Looking forward, we are very well-positioned to navigate through a wide range of possible scenarios, especially given the strength of our network of drive-thrus and fast-growing delivery channel,” said Restaurant Brands CEO Jose Cil. “We are excited to roll out digital drive-thru menu boards to over 10,000 Tim Hortons and Burger King restaurants in the US and Canada, the bulk of which will be installed by the end of next year.”

Cil added that the company is working closely with its partners to “capitalize on emerging opportunities and return to growth in 2021”.

As of the end of September, 96% of the chain’s restaurants globally were open, including in North America, Asia Pacific and Europe, Middle East and Africa.

Looking ahead, the Burger King parent said it expects to see continued impact from COVID-19 on its results in the fourth quarter. (See Restaurant Brands stock analysis on TipRanks).

Oppenheimer analyst Brian Bittner on Oct. 15 cut the stock to Hold from Buy and removed his $62 price target, saying that shares had approached his PT and catalysts for additional upside are limited.

“Our analysis also indicates same-store-sales at Burger King and Tim Hortons (89% of profits) are trending considerably below peers and hold elevated risk to achieving Street expectations over the next few quarters,” Bittner wrote in a note to investors. “A valuation re-rating requires a stronger-than expected SSS [same-store sales] path and/or unit opening trends, neither of which we anticipate.”

Overall, Wall Street analysts are cautiously optimistic on the stock. The Moderate Buy consensus shows 8 Buys versus 3 Holds. With shares down 15% this year, the $67 average price target provides investors with 23% upside potential in the coming 12 months.