Wendy's (WEN) Stock Gains on Q1 Earnings & Revenue Beat

Shares of The Wendy’s Company WEN were up over 5% in yesterday’s trading session after the company posted robust first-quarter 2017 results.

Earnings and Revenue Discussion

Adjusted earnings came in at 9 cents, surpassing the Zacks Consensus Estimate of 8 cents by 12.5%. However, earnings declined 18.2% year over year mainly due to lower sales.
 

Total revenue of $285.8 million surpassed the consensus mark of $279.3 million by 2.3%. However, it decreased 24.6% year over year. The decline reflects a reduction in the number of company-operated restaurants as a result of its system optimization initiative. It owned 301 fewer company-operated restaurants in the first quarter compared with the year-ago quarter. The decline was partly offset by higher franchise royalty revenue and fees and franchise rental income.

Comps at North America system restaurants were up 1.6%, higher than an increase of 0.8% in the previous quarter driven by the popularity of its value meals. However, it was lower than comps growth of 3.6% a year ago.

Profit Discussion

North America company-operated restaurant margin decreased 50 basis points (bps) to 16.7% primarily due to higher labor rates, partly offset by lower commodity costs.

General and administrative expenses decreased 19% year over year owing to cost savings related to the company's system optimization initiative, lower professional fees and legal reserves as well as lower incentive compensation accruals.

Meanwhile, adjusted EBITDA (earnings before interest, tax, depreciation and amortization) decreased 9.1% year over year due to fewer company operated restaurants and higher other operating expenses. Nonetheless, EBITDA margin improved 530 bps to 31.2% owing to the positive impact of the company's system optimization initiative.

Image Activation

Image Activation remains an integral part of our global growth strategy and includes reimaging existing restaurants and building new restaurants.

At the end of first-quarter 2017, approximately 33% of the global system featured the brand’s new image. The company and its franchisees continue to expect to have roughly 42% of the global system, image activated, by the end of 2017. Additionally, Wendy’s reiterated its full-year 2017 net new unit growth expectations. The number of new units is expected to increase a respective 1% and 12.5% in North America and internationally.

Moving ahead, the company plans to continue to facilitate franchisee-to-franchisee restaurant transfers through its buy-and-flip strategy for ensuring that restaurants are operated by well-capitalized franchisees who are committed to long-term growth. During the first quarter, Wendy’s facilitated 116 Buy and Flips and expects to complete around 475 in 2017 (which is higher than the previous estimate of 400).

2017 Guidance Updated

In 2017, the company continues to expect adjusted earnings per share in the range of 45 cents to 47 cents, up approximately 13–18% from 2016 levels. The Zacks Consensus Estimate of 46 cents is also pegged within the guided range. Further, the company expects comps growth of approximately 2–3% for the North America system.

Adjusted EBITDA is now projected to be roughly $400 million to $406 million, reflecting an increase of 2–4% compared with 2016 levels. Previously, the company projected the same to be around $396--$404 million, an increase of 1–3% compared with 2016.

Currently, restaurant margin is projected to be roughly 18.5%.

Capital expenditures are still expected to range between $80 million and $90 million.

Long-Term Outlook Reaffirmed

The company continues to anticipate record global restaurant sales (in constant currency and excluding Venezuela) of $12 billion by the year 2020. Also, it expects to reach global restaurant count of 7,500 and targets to complete Image Activation of at least 70% of the global system. Notably, Wendy’s aims to realize free cash flow of approximately $275 million by 2020.

Moreover, it looks forward toward achieving adjusted EBITDA margin in the range of 38–40% by the end of year 2020.

Wendy’s has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wendy's Company (The) Price, Consensus and EPS Surprise

 

Wendy's Company (The) Price, Consensus and EPS Surprise | Wendy's Company (The) Quote

Peer Releases

McDonald's Corp. MCD reported first-quarter adjusted earnings per share of $1.47, beating the Zacks Consensus Estimate of $1.32 by 11.4%. Earnings also increased 18% year over year.

Chipotle Mexican Grill, Inc.’s CMG first-quarter 2017 adjusted earnings of $1.60 per share outpaced the Zacks Consensus Estimate of $1.28 by 25%. Also, earnings compared favorably with the year-ago quarter figure of a loss of 88 cents per share, given a substantial rise in revenues.

In first-quarter 2017, Yum! Brands, Inc. YUM posted earnings of 65 cents per share that outpaced the Zacks Consensus Estimate of 60 cents by 8.3%. Further, earnings increased 17% year over year due to lower share count.

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