QSR outpaces expectations, led by Tim Horton brand

Restaurant Brands International (QSR) reported second-quarter earnings that were mixed compared to analyst expectations. The company posted revenue of $2.08 billion, a 17% increase year-over-year, but slightly below the estimated $2.11 billion. Adjusted earnings per share (EPS) came in at $0.86, matching analyst forecasts. Despite the revenue miss, the company showed strong performance in operating income, with an adjusted figure of $632 million, beating estimates by 2.9%.

Breaking down the segments, Tim Hortons was the strongest performer with comparable sales growth of 4.6%, surpassing the estimated 3.77%. Burger King and Firehouse Subs, however, reported softer performance, with both posting a slight decline of 0.1% in comparable sales, missing expectations of 3.42% and 2.46% respectively. Popeyes reported modest comparable sales growth of 0.5%, below the expected 3.3%. The international segment saw a 2.6% increase in comparable sales, just shy of the 3% estimate.

Margins and expenses were mixed for the quarter. The gross margin decreased to 37.8% from 40.6% year-over-year, while the EBITDA margin also declined to 34.7% from 37.5%. Free cash flow, however, saw a significant increase of 139% from the previous quarter, reaching $291 million. The company’s system-wide sales were $11.25 billion, up 2.8% year-over-year, though below the estimated $11.55 billion.

Key drivers of the results included Tim Hortons' strategic initiatives to attract more customers through new product offerings, such as flatbread pizzas and cold coffee drinks. However, the performance of Burger King was softer than expected, with the U.S. segment underperforming despite outpacing some rivals in sales and traffic. Popeyes' new menu items like boneless wings helped drive sales, though not as significantly as anticipated.

Looking ahead, Restaurant Brands forecasted system sales growth below their long-term target of 8%, with a comparable sales increase of about 2% expected in the second half of 2024. The company also projected adjusted operating income growth of over 8% for the year. The acquisition of Popeyes China, completed just before the quarter ended, is expected to contribute to the next quarter’s results.

Overall, the market reacted positively to the earnings report, with shares rising 3% in morning trading. Despite missing revenue expectations, the company’s strategic efforts and cost management showed potential for continued growth, particularly with the upcoming integration of new acquisitions and product innovations aimed at driving customer engagement and sales.