UPDATE 2-Burger King profit beats estimates as costs fall

Wed Jul 31, 2013 1:32pm EDT

July 31 (Reuters) - Burger King Worldwide Inc reported a higher-than-expected rise in quarterly profit, helped by a sharp fall in costs as the world's second-biggest hamburger chain finished selling most of its restaurants to franchisees.

Expenses dropped nearly 65 percent in the second quarter compared to the same quarter last year, as the company paid less for borrowing costs, packaging, food, wages and rent.

The fast-food chain known for its Whopper hamburgers sold 305 restaurants to franchisees in the quarter. Almost all of its 13,000 restaurants now are owned by independent owners.

Successful franchise business models provide a steady and lower-risk stream of revenue to restaurant companies because franchisees pay royalties based on overall sales.

Franchisees tend to be invested in the success of their businesses. They also are on the hook for operating costs ranging from worker pay and food to rent and supplies, such as straws and paper wrappers.

McDonald's Corp and most other fast-food restaurants franchise virtually all of their restaurants. Starbucks Corp and Chipotle Mexican Grill Inc are among a handful of chains that own and operate most of their restaurants.

Burger King said second quarter net profit rose almost 31 percent to $62.9 million, or 18 cents per share, from $48.2 million in the second quarter of 2012.

Excluding items, the company reported earnings of 21 cents per share, topping analysts' average forecast of 19 cents, according to Thomson Reuters I/B/E/S.

Quarterly global sales at established restaurants rose 0.6 percent, helped mainly by sales in Europe, the Middle East, Africa and Asia.

Analysts polled by Consensus Metrix had expected global same-restaurant sales to fall 0.1 percent.

Same-restaurant sales fell 0.5 percent in the United States and Canada, far less than the 1.1 percent drop analysts expected, as Burger King battles stiff competition from fast-food giant McDonald's Corp and from Wendy's Co.

Revenues fell by almost half to $278.3 million as the company transitioned to a fully franchised model and demand from frugal diners remained soft. Analysts had expected revenues of $322.3 million. Excluding the impact of refranchising and currency movements, revenue increased 1.2 percent year-over-year.

Shares in Burger King were down 17 cents, or 0.9 percent, to $19.37.

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