Restaurant Brands International Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; U.S. dollars. RBI franchises and operates Tim Hortons, Burger King, Popeyes and Firehouse Subs. It had 31,113 restaurants across more than 120 countries and territories; nearly all were franchised. The company reports five segments: the four brands in the U.S. and Canada, plus international operations.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $1.739 billion | $1.590 billion |
| Income from operations | $544 million | $447 million |
| Operating margin | 31.3% | 28.1% |
| Net income | $328 million | $277 million |
| Net income attributable to common shareholders | $230 million | $189 million |
| Diluted EPS | $0.72 | $0.61 |
| Adjusted Operating Income (non-GAAP) | $540 million | $505 million |
| Cash from operating activities | $148 million | $95 million |
Revenue increased 9.4%; income from operations rose 22%, while Adjusted Operating Income increased 7%. Net income benefited from stronger segment results, a $35 million favorable year-over-year change in other operating expenses (including foreign exchange gains), and the absence of $19 million of prior-year Firehouse transaction costs. These benefits were partly offset by $40 million higher income tax expense, $6 million higher interest expense and $4 million of Carrols transaction costs. The effective tax rate was 17.2%, versus 9.1%.
Consolidated system-wide sales grew 8.1% and comparable sales grew 4.6%, compared with 14.7% and 10.3%, respectively, a year earlier. System-wide sales growth/comparable sales by segment: Tim Hortons 7.8%/6.9%; Burger King 2.6%/3.8%; Popeyes 10.4%/5.7%; Firehouse Subs 4.3%/0.3%; International 11.6%/4.2%. Consolidated net restaurant growth was 3.9%, versus 4.2% a year earlier; Burger King’s net restaurant growth was negative 2.4%.
Cash and cash equivalents were $1.049 billion at March 31, down from $1.139 billion at year-end. Operating cash flow was $148 million; investing activities used $31 million and financing activities used $203 million, including $245 million in dividends and partnership distributions. Capital expenditures were $26 million. Long-term debt, net, was $12.907 billion, with $110 million of current debt and finance lease obligations. The revolving facility had no borrowings and $1.248 billion available. RBI reported compliance with applicable debt covenants.
Interest expense, net, was $148 million versus $142 million; the weighted average interest rate on long-term debt was 5.0% versus 4.9%. Management estimated next-12-month debt service of approximately $480 million interest and $60 million principal on term loans, partly offset by expected net receipts of approximately $128 million on interest-rate swaps; senior-note and TH Facility interest and principal requirements are additional.
Material changes, outlook and risks
- Revenue and income increased, but comparable-sales growth slowed across most brands versus the prior-year quarter. Popeyes was the exception, with comparable-sales growth improving.
- Segment reporting and the segment-income measure changed in 2023; prior periods were recast. Adjusted Operating Income is a non-GAAP measure, not directly equivalent to GAAP operating income.
- RBI agreed to acquire the remaining Carrols Restaurant Group shares for $9.55 per share, at an announced enterprise value of approximately $1.0 billion. The deal was expected to close in Q2 2024, subject to approvals and other customary conditions, and was expected to be funded with approximately $230 million cash and term-loan debt. RBI had financing commitments for an additional $750 million Term Loan B, conditional on closing. The filing reports a related shareholder lawsuit seeking, among other things, to enjoin the vote or transaction; RBI said it intended to defend the claims.
- Burger King’s Reclaim the Flame plan totals $400 million. By March 31, RBI had funded $79 million for advertising and digital investment and $81 million for remodels and related improvements. In April, Burger King announced an additional $300 million of remodel investment planned for 2025–2028.
- Management said available cash, operating cash flow and revolver availability should fund current obligations, debt service and capital spending over the next 12 months. The filing does not provide a specific consolidated full-year revenue or earnings forecast.
- Risks highlighted include substantial debt and interest-rate exposure, inflation and commodity, labor and energy costs, consumer softness, franchisee financial health, foreign-exchange movements, geopolitical conflicts, and execution, financing, approval and litigation risks related to the Carrols acquisition. Management also noted that interim results are not necessarily indicative of full-year results.
Investor verification points
- Track comparable sales and system-wide sales growth, especially the slowing growth rates at Tim Hortons, Burger King, Firehouse Subs and International operations.
- Verify the timing, approvals, financing, closing costs and integration outcomes of the Carrols acquisition, including developments in the shareholder lawsuit.
- Monitor debt service, variable-rate exposure, hedge settlements, revolver availability and the planned use of cash for dividends, investment and acquisitions.
- Assess whether operating cash flow and margins remain resilient as costs, taxes and consumer conditions change; compare GAAP results with management’s non-GAAP Adjusted Operating Income.
- Check progress and spending against Burger King’s remodel and advertising commitments and the announced 2025–2028 investment extension.