Should You Take a Bite of This Fast Food Chain?

Source: Burger King

Burger King (NYSE: BKW  ) reported better-than-expected earnings for the fourth quarter of 2013 on Thursday, and the company seems to be moving in the right direction in terms of restructuring the business and increasing profitability. Should you take a bite of this fast food chain?

Moving in the right direction
Burger King has been going through a transformation process during the last several years, and management's efforts are baring visible results. The company's store base is now fully franchised, which should provide more stability and predictability for cash flows in the coming years.

Burger King is also revamping its stores, which, according to management, can increase sales by between 10% and 15% at remodeled locations. Menu innovation has been the weapon of choice for competitors in the fast food industry lately, and Burger King has scored a big victory with its lower-calorie french fries, Satisfries. Premium products like its BBQ Rib sandwich and Big King sandwich are not only positive for sales, but also in terms of profitability contribution.

Systemwide sales increased by 5.7% in the fourth quarter of 2013 on the back of a 1.7% increase in comparable sales. Most of that growth is coming from international markets, though: The U.S. and Canada region is delivering lackluster performance, with a 0.2% increase in comparable sales during the quarter.

On the other hand, recent improvements have been quite beneficial for the company in terms of profitability. Adjusted EBITDA grew 10% on an organic basis during the quarter, and adjusted earnings per share jumped by a remarkable 22.4%, to $0.84 per share, $0.01 above analyst estimates.

Competitive landscape
McDonald's (NYSE: MCD  ) is delivering uninspiring growth rates lately, global comparable sales fell by 0.1% during the fourth quarter as a higher average check was not enough to compensate for negative comparable guest counts. Menu innovations like McWrap and Mighty Chicken Wings have not produced the desired response from customers, so the company will need to step up its efforts in the coming quarters if it intends to reinvigorate sales and recover.

Comparable sales performance was particularly week in the U.S. during January, with a 3.3% decline. Weather conditions may be partially responsible for such a dismal performance, but the company is still not showing any signs of a sustainable turnaround at this stage.

Yum! Brands (NYSE: YUM  ) has seen some important improvement signs in China during the December quarter, and this is a big positive for the company as it may indicate that the situation in KFC China is slowly turning around after the negative impact from safety concerns regarding its poultry suppliers in the country.

In the U.S., on the other hand, things are not looking well for Yum! Brands: Same-store sales fell by 2% during the last quarter of 2013 on the back of a 4% decline at Pizza Hut and a 5% fall at KFC. Taco Bell is doing better though, as it reported its eighth consecutive quarter of same-store sales growth with a 1% increase for the quarter.

Wendy's (NASDAQ: WEN  ) is in the midst of a turnaround, restructuring its operations via increased franchising, revamping stores to generate an improved customer experience, and focusing on innovation with products like its successful Pretzel Bacon Cheeseburger and Pretzel Pub Chicken sandwich.

According to the company's preliminary results, North America same-restaurant sales increased by 3.1% in the fourth quarter of 2013, and management is expecting same-restaurant sales growth of between 2.5% and 3.5% for 2014. Like Burger King, Wendy´s seems to be gaining market share versus larger rivals like McDonald's and Yum! Brands via menu innovations and improved operations.

Bottom line
Revenue growth is quite uninspiring in the U.S., but Burger King seems to be gaining market share versus giants like McDonald's and Yum! Brands, while at the same time generating sound performance in international markets. Besides, management is proving its ability to deliver growing profitability and successful menu innovation, a key competitive factor in the industry. The fast food industry is a very challenging business, but Burger King looks like a tasty option to pick from the menu.

This investment can change your life!
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free, and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2840735, ~/Articles/ArticleHandler.aspx, 9/4/2015 1:03:21 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

Today's Market

updated Moments ago Sponsored by:
DOW 16,079.56 -295.20 -1.80%
S&P 500 1,920.69 -30.44 -1.56%
NASD 4,676.74 -56.76 -1.20%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
BKW $0.00 Down +0.00 +0.00%
Burger King Worldw… CAPS Rating: *
MCD $94.48 Down -1.53 -1.59%
McDonald's CAPS Rating: ***
WEN $9.10 Up +0.09 +1.00%
The Wendy's Compan… CAPS Rating: ***
YUM $78.48 Down -1.74 -2.17%
Yum! Brands CAPS Rating: ****