Burger King Worldwide Inc. (NYSE: BKW) today reported financial results
for its third quarter ended September 30, 2012.
Third Quarter Highlights:
-- System-wide comparable sales increased 1.4% and system-wide sales increased 3.9% on a constant currency basis
-- Adjusted EBITDA increased 6% on an organic basis to $162.0 million
-- Adjusted Diluted EPS increased 11% to $0.17
-- Refinanced Term Loan B, lowering annualized cash interest costs by approximately $25 million
-- Initiated new quarterly cash dividend of $0.04 per share
BKW Chief Executive Officer Bernardo Hees said, "We completed our first full quarter as a public company with continued positive momentum despite the challenging global economic environment. BKW is fortunate to have one of the most widely recognized and resilient brands in the global QSR industry and we are proud of the hard work and dedication of our employees and franchisees who are striving to deliver a strong finish to a critical year for the BURGER KING system. In the U.S. and Canada, we are executing on our four pillar strategy, while internationally we completed additional refranchisings and development agreements that we believe will accelerate restaurant growth in the years to come." Chief Financial Officer Daniel Schwartz added, "We are excited to begin returning cash to our shareholders with the initiation of a quarterly cash dividend, underscoring our confidence in BKW's business model and commitment to disciplined capital allocation."
Organic revenue growth was 0.2%, excluding the impact of refranchising and FX headwinds. On a reported basis, total revenues decreased 25.8% to $451.1 million, compared to $607.7 million in the prior year period due to refranchising transactions in the U.S. and Canada, EMEA and APAC as well as unfavorable FX impact, partially offset by comparable sales growth and increased franchise and property revenues.
Organic Adjusted EBITDA growth was 6.3%, excluding the impact of refranchising and FX headwinds. On a reported basis, Adjusted EBITDA increased 0.6% to $162.0 million, compared to $161.0 million in the prior year period. Organic growth was driven by comparable sales and net restaurant growth, as well as G&A cost control, while growth was lower on a reported basis due to significant progress on our global refranchising initiative and FX headwinds primarily related to a weaker Euro. Year to date, Adjusted EBITDA grew 11%.
Adjusted net income and Adjusted Diluted EPS increased 12.7% and 10.6%, respectively, compared to the prior year, primarily due to an increase in Adjusted EBITDA, lower Depreciation and Amortization and lower interest expense. Year to date, Adjusted Net Income increased 26% and Adjusted Diluted EPS grew 25%.
Operational and Segment Highlights
System-wide comparable sales growth was positive across all segments except APAC. The U.S. and Canada delivered 1.6% comparable sales growth driven by the company's Summer BBQ and Chicken offerings. The company was pleased with the results of its limited time offerings and progress in attracting a more diverse customer base, but experienced a deceleration in comparable sales growth due to more challenging prior year comparisons and the loss of some value based traffic.
EMEA delivered comparable sales growth of 1.8%, driven by double digit comparable store sales growth in the company's expanding Russian market, continued success of "Kings of the Day" promotions in the United Kingdom, and "King of the Month" deals in Germany. Performance in Southern Europe was softer, with the company's key Spain market showing deceleration as economic conditions deteriorated during the quarter.
Latin America and the Caribbean ("LAC") delivered comparable sales growth of 2.7%, despite challenging prior year comparisons in each of the company's key markets. BKW has implemented new value initiatives in Brazil and Mexico in October to balance its menu options and complement premium offerings such as the Picanha burger in Brazil, and is seeing initial signs of success in driving incremental traffic.
APAC comparable sales declined by 2.2%, driven by weaker results in Australia and Korea as well as a particularly challenging prior year comparison in New Zealand, which hosted the rugby world cup in 2011.
As part of BKW's global refranchising strategy, the company refranchised 221 company-owned restaurants during the quarter, including 182 restaurants in the U.S. and 39 restaurants internationally. In connection with this quarter's refranchising transactions, BKW received cash proceeds of $31.6 million, development commitments both domestically and internationally, and domestic re-imaging commitments for 356 restaurants.
As part of BKW's international expansion strategy, the company announced new Master Franchise and Development agreements with our existing Malaysian franchisee, Rancak Selera, to support the acceleration of restaurant growth in Singapore and Malaysia. Rancak Selera is a portfolio company of Ekuiti Nasional Berhad (Ekuinas), a government-linked private equity fund management company established to create the next generation of leading Malaysian companies. In connection with the Master Franchise and Development agreements, BKW refranchised 38 restaurants in Singapore to Rancak Selera and received a development commitment that is expected to more than double the BURGER KING brand's restaurant count in Singapore and Malaysia over the next 5 years.
Cash and Liquidity
At quarter end, total debt was $3.1 billion and net debt was $2.6 billion. During the quarter, BKW refinanced its existing Term Loan B facility with a new $1,735 million Term Loan A and Term Loan B facility. The new Term Loan A pays interest at LIBOR plus 2.25% and the new Term Loan B pays interest at LIBOR plus 2.75% with a 1.00% LIBOR floor. As a result of the refinancing transaction and based on three month LIBOR at the time of closing, BKW expects to realize annualized cash interest savings of approximately $25 million. Due to the improvement in net debt and in trailing twelve month Adjusted EBITDA, the net debt to Adjusted EBITDA ratio improved to 4.1x at September 30, 2012 from 4.6x at December 31, 2011.
Initiation of Quarterly Cash Dividend
The company also announced that its Board of Directors has approved the initiation of a quarterly cash dividend. On October 28, 2012, the Board declared the company's first quarterly cash dividend of $0.04 per share, which will be paid on November 29, 2012 to shareholders of record at the close of business on November 9, 2012. Future dividends will be determined at the discretion of the Board of Directors.
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