Burger King sees commodity costs easing, shares up
LOS ANGELES (Reuters) - Burger King Holdings Inc (BKC.N) stood by its full-year profit forecast in the face of an economic downturn and said it expects easing commodity costs to help profitability, sending shares in the world's No. 2 hamburger chain up more than 3 percent.
Sales at global stores open at least one year rose 3.6 percent. Same-store sales in North America were up 3.0 percent, helped by menu items like Apple Fries and Kraft Mac & Cheese.
"This is great news, in our view, bolstering our belief BK's consumer in the U.S. is still strong even in the face of severe macro economic headwinds," said Stifel Nicolaus analyst Steve West.
The company has also seen a substantial decline across many food items and as a result sees profitability improving in the current quarter, Chief Executive John Chidsey told analysts on a conference call.
Burger King, best known for its Whopper hamburgers, said net income rose to $50 million, or 36 cents per share, in its fiscal first quarter, ended September 30, from $49 million, or 35 cents per share, a year earlier.
Excluding costs tied to buying 72 franchise restaurants, Burger King earned 38 cents per share, missing analysts' average forecast of 39 cents per share, according to Reuters Estimates.
"Adjusted quarterly results were modestly below published Street estimates, though we believe the underlying expectation was for such a miss," Barclays Capital analyst Jeffrey Bernstein said in a client note.
Total revenue rose 12 percent to $674 million.
Burger King, which has more than 11,500 restaurants worldwide, has been sprucing up older eateries, rolling out premium sandwiches, extending hours and adding value-menu items like the Cheesy Bacon BK Wrapper sandwich to catch up with rivals like McDonald's Corp (MCD.N) and Yum Brands Inc (YUM.N), the parent of the Taco Bell, Pizza Hut and KFC fast-food chains.
COMMODITY SQUEEZE
The entire restaurant industry has been squeezed by high commodity costs, but fast-food companies have been hesitant to raise prices because their customers are hard-hit by a weak U.S. economy.
Burger King said, however, it has seen a significant drop since the end of July in the prices for many ingredients, such as beef, cheese, corn, wheat and oil.
At Burger King, total restaurant margins in the quarter fell to 12.6 percent, from 15.3 percent a year ago, hurt by high commodity costs and expenses tied to remodeling outlets.
The company maintained its full-year outlook, which calls for 2009 earnings of $1.54 to $1.59 per share.
"Going forward, we expect earnings will benefit from already moderating food and energy costs," Chidsey said. Continued...
