Restaurant Brands International Inc. — Q2 2022 Form 10-Q
Business context and reporting period
Quarter and six months ended June 30, 2022; amounts are U.S. dollars. RBI franchises and operates Tim Hortons, Burger King, Popeyes and Firehouse Subs. At quarter-end it had 29,747 restaurants in more than 100 countries, with approximately 100% of system-wide restaurants franchised. Firehouse Subs was acquired in December 2021, so its results are included in 2022 but not the comparable 2021 results.
Financial and operating results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $1.639 billion | $1.438 billion | $3.090 billion | $2.698 billion |
| Income from operations | $541 million | $488 million | $991 million | $930 million |
| Net income | $346 million | $391 million | $616 million | $662 million |
| Net income attributable to common shareholders | $236 million | $259 million | $419 million | $438 million |
| Basic / diluted EPS | $0.77 / $0.76 | $0.84 / $0.84 | $1.36 / $1.35 | $1.43 / $1.42 |
| Adjusted EBITDA | $618 million | $577 million | $1.148 billion | $1.057 billion |
- Q2 revenue rose 14% as reported, or $243 million excluding unfavorable foreign-exchange impact. H1 revenue rose 15% as reported, or $442 million excluding FX impact.
- Q2 Adjusted EBITDA increased 7.1%; H1 increased 8.6%. Q2 operating margin was approximately 33.0%, versus 33.9% a year earlier; net margin was approximately 21.1%, versus 27.2%.
- Q2 system-wide comparable sales increased 9.0% overall: Tim Hortons 12.2%, Burger King 10.0%, Popeyes 1.4%, and Firehouse Subs decreased 1.4%. Burger King U.S. comparable sales increased 0.4%; Popeyes U.S. sales were relatively flat.
- H1 cash from operations was $669 million, compared with $745 million. Investing used $46 million; financing used $860 million. Cash and equivalents fell to $838 million at June 30 from $1.087 billion at year-end.
- Debt was $12.959 billion net of financing costs, including $112 million current debt and finance-lease obligations. The company had $998 million available on its revolving facility and reported compliance with debt covenants. Management described the company as highly leveraged.
- Cash dividends and partnership distributions totaled $485 million in H1; share repurchases were $326 million. A $0.54-per-share dividend was paid in July, and another $0.54 dividend was declared for October.
Material changes versus the prior period
- Despite higher revenue and Adjusted EBITDA, Q2 net income fell $45 million and H1 net income fell $46 million. Management attributed the declines primarily to higher income tax expense: $95 million more in Q2 and $101 million more in H1, alongside higher share-based compensation and equity-method investment losses.
- The prior-year comparison benefited from tax-reserve releases of $89 million in Q2 2021 and $87 million in H1 2021. The 2022 effective tax rates were 15.9% for Q2 and 16.2% for H1, versus (8.1)% and 2.6%, respectively, in 2021.
- H1 operating cash flow declined $76 million, primarily due to greater working-capital cash use. Financing outflows increased, chiefly due to common-share repurchases.
- Restaurant count was 29,747 versus 27,403 a year earlier; the increase includes Firehouse Subs. H1 consolidated system-wide sales growth was 14.0%, compared with 15.5% in 2021, while consolidated comparable sales growth was 8.4%, compared with 8.0%.
Outlook, commentary, risks and unusual items
- No specific full-year revenue, earnings or comparable-sales guidance is provided. Management said cash from operations and revolving-credit availability should fund obligations, debt service and capital spending over the next 12 months.
- Management cited higher commodity, labor and energy costs, supply-chain pressures, labor challenges and the possibility that price increases may not fully offset inflation without weakening consumer demand. COVID-related restrictions may continue in some markets.
- RBI suspended corporate support for Burger King in Russia, including operations, marketing and supply-chain support, and said it did not expect profits from Russian restaurants in 2022. Reported metrics still include Russian restaurants; excluding Russia, Q2 consolidated comparable sales increased 7.9%.
- RBI paid approximately $100 million in 2022 in connection with disputes involving Burger King and Popeyes master franchise agreements in China; $72 million had been recorded in 2021. Most related to Popeyes and the move to a new master franchisee. RBI and its partner also contributed equity to the Burger King China business.
- Firehouse acquisition-related and corporate restructuring/tax advisory costs continued, and management expected additional costs of both types during the remainder of 2022. Firehouse purchase-price allocation remained preliminary.
- Notable legal matters include Burger King employee no-poach litigation, Canadian mobile-app privacy cases subject to a proposed settlement requiring a beverage and baked good for class members, a securities class action, and PFAS packaging lawsuits. RBI said it could not predict outcomes or estimate possible losses for several cases.
- Management cited a 2030 target to reduce greenhouse-gas emissions by 50% and a net-zero target for 2050; achieving these goals will require action by suppliers and franchisees. Disclosure controls were deemed effective; Firehouse was still being integrated into internal-control processes.
Important facts for investors to verify
- Whether comparable-sales and system-wide sales trends persist, particularly the weaker U.S. Burger King and Popeyes results and the Q2 Firehouse decline.
- Whether food, labor and energy inflation, supply constraints, or franchisee financial stress affect margins, operations or royalty collections.
- Debt service capacity, variable-rate exposure and liquidity, including the stated availability under the revolving facility and planned dividends and repurchases.
- The financial and operational consequences of RBI’s Russia actions and the China master-franchise resolutions.
- Final Firehouse purchase accounting, further acquisition and restructuring costs, and the outcomes or potential costs of disclosed litigation.