Burger King results hit by demand drop

By Lisa Baertlein and Aarthi Sivaraman

LOS ANGELES/NEW YORK (Reuters) - Burger King Holdings Inc (BKC.N) said on Wednesday it saw a surprise drop in customer visits to its restaurants in March, shaking investor confidence and sending shares down 17 percent.

Burger King also said its fiscal third-quarter profit should meet or exceed Wall Street's expectations, although it would be largely due to a lower tax rate.

"People are concerned with how quick the same-store sales slowed," Oppenheimer restaurant analyst Matthew DiFrisco said.

Burger King, best known for its Whopper hamburgers, said it faced an "unanticipated traffic slowdown" in March across most company-owned restaurants, which hurt its margins for the quarter.

Since the latest quarterly financial reports are just beginning to hit, Telsey Advisory Group analyst Tom Forte said "it remains to be seen if it was a market share loss."

Analysts expect bigger rival McDonald's Corp (MCD.N) to have outperformed Burger King during the quarter, in part because McDonald's restaurants are spread more evenly about the country.

Stifel Nicolaus analyst Steve West said Burger King has no company-owned eateries west of the Mississippi River and that the U.S. traffic declines were likely due to weakness in the Southeast or mid-Atlantic regions.

Analysts said the precipitous traffic decline came as a particular surprise because Carrols Restaurant Group (TAST.O), the company's largest franchisee, recently said sales at its established Burger Kings were up about 5 percent as of February.

West said Burger King has turned in "four quarters in a row of poor-quality earnings" and the credibility of management, which recently expressed bullishness, is taking a hit.

LOWER TAXES HELP PROFIT

Burger King expects to report a profit of 33 cents a share to 35 cents a share for the fiscal third quarter, which ended on March 31.

Analysts, on average, expect a profit of 33 cents a share, according to Reuters Estimates.

Burger King said its tax rate for the quarter was significantly lower than the year-earlier period and boosted earnings by about 5 cents per share. The company also got a lift from better cost controls and a drop in interest expense.

The hamburger chain said quarterly sales rose 1 percent to $600 million. Worldwide sales at stores open at least one year were up 1 percent, while U.S. and Canada same-store sales were up 1.6 percent.

Burger King said that, so far in April, same-store sales have improved, mostly due to the shift of the Easter holiday into April from March and efforts to stem hefty traffic declines in Germany and Mexico.