Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR), one of the world’s largest quick service restaurant companies, announced second-quarter earnings before the market opened on of July 27, and its stock has responded by rising over 5%. Let’s take a closer look at the results to determine if we should consider buying in to this rally, or if we should wait for a better entry point in the trading sessions ahead instead.
The results that ignited the rally
Here’s a summary of Restaurant Brands’ second-quarter earnings results compared to its pro forma results in the same period a year ago. All figures are in U.S. dollars.
| Metric | Q2 2015 | Q2 2014 |
| Adjusted Earnings Per Share | $0.30 | $0.24 |
| Total Revenue | $1.04 billion | $1.06 billion |
Source: Restaurant Brands International Inc.
Restaurant Brands’ adjusted earnings per share increased 25% and its revenue decreased 1.6% compared to the second quarter of fiscal 2014. The company’s very strong earnings per share growth can be attributed to its adjusted net income increasing 27.3% to $142.7 million, helped by its total costs of sales decreasing 4% to $475.9 million. Its slight decline in revenue can be attributed to sales decreasing 4.3% to $539 million and franchise and property revenues decreasing 4.4% to $224.2 million in its Tim Hortons segment, which was only partially offset by sales increasing 57.4% to $28.8 million and franchise and property revenues increasing 2.7% to $249.4 million in its Burger King segment.
Here’s a quick breakdown of eight other notable statistics from the report compared to the year-ago period:
- System-wide sales increased 2.6% to $4.41 billion at Burger King
- System-wide sales decreased 2.6% to $1.66 billion at Tim Hortons
- On a constant currency basis, system-wide sales increased 11.6% at Burger King and 8.4% at Tim Hortons
- Comparable-store sales increased 6.7% at Burger King
- Comparable-store sales increased 5.5% at Tim Hortons
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 7.3% to $427.2 million
- Opened 141 net new Burger King Restaurants during the quarter, bringing its total count to 14,528
- Opened 52 net new Tim Hortons restaurants during the quarter, bringing its total count to 4,776
Restaurant Brands also announced a 20% increase to its quarterly dividend to $0.12 per share, and the next payment will come on October 2 to shareholders of record at the close of business on August 28.
Could the rally continue?
It was a solid quarter overall for Restaurant Brands, so I think the pop in its stock is warranted. I also think this could be the start of a sustained rally to new all-time highs, because the stock still trades at attractive forward valuations, including 47 times fiscal 2015’s estimated earnings per share of $1.17 and 37.2 times fiscal 2016’s estimated earnings per share of $1.48, both of which are inexpensive compared to the industry average price-to-earnings multiple of 50.2.
With all of the information provided above in mind, I think Restaurant Brands International represents one of the best long-term investment opportunities in the highly competitive restaurant industry. Foolish investors should take a closer look and consider beginning to scale in to positions today.
