Burger King's profit down amid turnaround push
NEW YORK (AP) — Burger King's net income fell 83 percent in the third quarter as the world's second biggest hamburger chain sold off more of its restaurants to franchisees as part of a turnaround push. But the company's adjusted results topped Wall Street expectations.
The private investment firm that owns a majority stake in the fast-food chain, 3G Capital, has been working to put the shine back in Burger King's crown since purchasing it in 2010. In addition to unveiling its biggest ever menu expansion and a celebrity-studded ad campaign this spring, the firm has been shifting to an entirely franchisee-owned model to cut down on overhead costs and boost profit margins
3G's turnaround push comes amid a time of intensifying competition in the U.S., with Taco Bell's introduction of popular new menu items such as its Cantina bowls and Wendy's looking to transform into a higher-end burger chain. And although McDonald's Corp. is seeing growth slow after years of dominating its rivals, the Oak Brook, Ill.-based chain has vowed to intensify its focus its Dollar Menu and value message to boost results in the challenging economy. Additionally, traditional fast-food chains are increasingly competing with a newer breed of chains, such as Panera Bread Co. and Chipotle Mexican Grill Inc., which offer higher-quality food for a little more money.
Burger King, which until recently had focused on courting junk food loving younger men, said new offerings are helping bring in more women and customers who are 55 and older, without eating into its core offerings of Whoppers and French fries. Steve Wiborg, president of North American operations, noted that the chain is benefiting from new menu lines, such as fruit smoothies, coffee frappes and specialty salads.
"That's all new business for us," Wiborg said.
Burger King, which is based in Miami and has more than 12,600 locations, said global revenue at stores open at least a year in the third quarter rose 1.4 percent. In the U.S. and Canada, the figure rose 1.6 percent as barbecue-themed menu items for the summer drove sales. The growth was slower than in the year-ago period, however, as the chain saw a decrease in the number of "value-focused" customers. Wiborg noted that Burger King is less dependent on its value menu than McDonald's and Wendy's.
CEO Bernardo Hees said sales at restaurants open at least a year are showing signs of picking up again for the fourth quarter. The sales figure is a key metric because it strips out the impact of newly opened and closed locations.
For the three months ended Sept. 30, net income fell to $6.6 million, or 2 cents per share. That compares with $38.8 million, or 11 cents per share, last year. Net income excluding one-items totaled 17 cents per share. Analysts expected 15 cents per share, according to FactSet.
Revenue fell 26 percent to $451.1 million, but was above the $439.7 million Wall Street expected.
Much of the revenue decrease came from Burger King selling restaurants to franchisees, which means the company no longer includes sales from those stores on its books. As of Sept. 30, Burger King said 95 percent of its restaurants were owned by franchisees; the goal is to eventually reach 100 percent.
Organic revenue, which excludes the impact of re-franchising and exchange rates, was flat.
In the region encompassing Europe, the Middle East and Africa, Burger King said sales at established restaurants rose 1.8 percent, driven by double-digit growth in Russia. Performance in Southern Europe was softer amid a weaker economic climate, the company said.
In Latin America and the Caribbean, Burger King said sales at established restaurants rose 2.7 percent. In the Asia Pacific region, the sales figure fell by 2.2 percent as weak performances in Australia and Korea dragged down results.
In addition to reviving its image at home, Burger King is increasingly focusing on international growth. The company has struck deals to expand in China and Russia through partnerships with franchisees. Over the past year, the vast majority of Burger King's new stores have been in Europe, the Middle East and Africa.
Burger King Worldwide Inc.'s third-quarter results are the second since it began trading again on the New York Stock Exchange in June. As part of a complex deal to return Burger King to the public market, 3G sold a minority stake in the chain to Justice Holdings Inc., a London-based shell that was specifically set up to invest in another company,
3G Capital, which more than earned back the $3.26 billion it paid for Burger King through the sale, has agreed to hold onto its stake in the chain for at least six months. Justice agreed to hold onto its shares for at least a year. Burger King's shares closed up almost 2 percent at $14.95 on Friday.