Burger King Profits Rise 42 Percent As Consumers Stuff Their Nervous Faces
NEW YORK — Customers bought more Whoppers, Cheesy Bacon BK Wrappers and crispy chicken sandwiches in the fourth quarter, driving Burger King's profit up 42 percent.
But investors weren't too impressed by the profit gain at the nation's No. 2 hamburger chain, sending the company's stock down 7 percent as they focused instead on higher food costs and expenses for sprucing up older locations.
Miami-based Burger King Holdings Inc. said it earned $51 million, or 37 cents per share, in the April to June quarter, up from $36 million, or 26 cents per share, a year earlier. That beat Wall Street analysts' expectations by 3 cents per share, according to Thomson Reuters.
Revenue rose 9 percent to $646 million from $590 million.
Sales in restaurants open at least a year, a key indicator of performance, jumped 5.3 percent worldwide and climbed 5.5 percent in the U.S. and Canada.
Goldman Sachs analyst Steven T. Kron said in a note to investors he was "impressed by Burger King's ability to drive top-line growth around the globe."
The sales boost came close to matching that of the chain's biggest rival, McDonald's Corp., which reported a rise of 6.1 percent worldwide in its latest quarter.
Burger King said promotions _ including one for the Whopper tied to the Indiana Jones movie "The Kingdom of the Crystal Skull" _ and new breakfast and kids menu items helped increase sales.
The chain also said extended hours at its U.S. locations added to sales there. The company has mandated that its franchise locations open early and stay open late to match efforts by competitors to entice more early risers and night owls.
A number of franchisees have balked, saying sales during those times do not cover the costs of staying open or the risk to their employees' safety. A group of franchisees in Florida filed a lawsuit last month against the chain, claiming the extended-hours mandate violates their franchise agreements and amounts to a safety and cost burden.
In a conference call with investors, Chief Executive John Chidsey said the vast majority of the company's franchisees support the initiative.
"You're always going to have a few naysayers," he said.
Besides the extended hours and promotions, Burger King said the addition of another 110 restaurants worldwide added to overall revenue.
But profit margins were lower than expected due to $4.3 million in remodeling expenses and high food, paper and product costs. Chief Financial Officer Ben Wells said beef costs alone jumped 11 percent during the quarter.
The magnitude of the cost increases appeared to be a surprise to analysts and investors. Standard & Poor's analyst Mark Basham said the costs pressured the company's profit more than he had expected.
Burger King shares fell $1.95, or 7.1 percent, to $25.50 Thursday.
Wells said costs have dropped somewhat in the past month, but food costs may still be up between 5 percent and 7 percent in 2009.
"We believe commodity costs peaked last month," he said on the conference call. But he added that food costs are still "setting in at a new higher plateau."
For the year, Burger King said it earned $190 million, or $1.38 per share, up from $148 million, or $1.08 per share. Revenue climbed to $2.46 billion from $2.23 billion.
For fiscal 2009, the company said it expects a profit of $1.54 to $1.59 per share and a rise in same-store sales of 3 percent to 4 percent. Analysts anticipate profit of $1.56 per share.
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AP Business Writer Dorothea Degen contributed to this report.
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LAUREN SHEPHERD | 08/21/08 06:47 PM |