Wendy's Q2 Adj Profit Tops View, But Revenues Miss, Backs 2013 Outlook

(RTTNews) - Fast food chain Wendy's Co. (WEN), announcing preliminary unaudited results, reported Tuesday a profit for the second quarter compared to a loss last year, reflecting lower charges and interest expense as well as improved revenues. Sales at established Wendy's stores in North America were up 0.4 percent, and grew 0.3 percent at franchise stores.

Adjusted earnings per share topped analysts' expectations, while quarterly revenues missed their estimates by a whisker. The company also reaffirmed its earnings guidance for the full-year 2013.

The company also announced plans to optimize its restaurant portfolio by selling about 425 company-operated restaurants to franchisees operators in order to reduce total system ownership to about 15 percent from 22 percent. The sale is expected to be completed in one year's time.

Following the announcements, the company's stock in trading higher by nearly 10 percent in early deals on Tuesday.

The system optimization initiative is part of a brand transformation to further improve earnings quality, optimize restaurant portfolio and enhance shareholder value.

The accelerated brand transformation includes reimaging and developing new restaurants, the new Wendy's logo, updated menu boards, innovative products and bold new packaging.

"We believe system optimization will also enable us to increase our long-term earnings per share growth rate and return incremental cash to shareholders in the form of dividends and share repurchases, beginning with a 25-percent increase in our third-quarter dividend," President and CEO Emil Brolick said in a statement.

As part of the system optimization initiative, the company's Board of Directors authorized a 25 percent increase in the quarterly cash dividend rate to $0.05 per share from $0.04 per share, effective from the third quarter, payable on September 17 to shareholders of record as of September 3, 2013.

The company also said it is now reporting preliminary unaudited results for the second quarter, and plans to file its Form 10-Q, including its final financial statements for the second quarter on August 7, 2013.

The Dublin, Ohio-based world's third largest quick-service hamburger company reported net income of $12.22 million or $0.03 per share for the second quarter, compared to a net loss of $5.49 million or $0.01 per share in the prior-year quarter.

Excluding items, adjusted earnings for the quarter was $31.78 million or $0.08 per share, compared to $19.22 million or $0.05 per share in the year-ago quarter.

On average, 18 analysts polled by Thomson Reuters expected the company to report earnings of $0.06 per share for the quarter. Analysts' estimates typically exclude special items.

Adjusted EBITDA for the quarter increased 15 percent to $102.1 million from last year.

Consolidated revenues for the quarter grew to $650.54 million from $645.87 million in the same quarter last year, but missed fifteen Wall Street analysts' consensus estimate of $655.94 million by a whisker.

Wendy's same-store sales at North America company-operated restaurants increased 0.4 percent for the second quarter. Franchise same-store sales in North America grew 0.3 percent.

Wendy's company-operated North America restaurant margin improved 260 basis points to 16.7 percent from last year.

Interest expense for the quarter declined to $18.96 million from $28.0 million last year.

Looking ahead to fiscal 2013, the company reaffirmed its outlook for adjusted earnings in a range of $0.20 and $0.22 per share, and adjusted EBITDA between $350 million to $360 million. Street is currently looking for full-year 2013 earnings of $0.21 per share.

Meanwhile, the company noted that it is currently trending towards the high end of both ranges due to its strong first-half 2013.

Average same-store sales growth for the year is also still expected between 2 and 3 percent at Wendy's North America Company-operated restaurants.

Due to the expected benefits from its system optimization initiative, the company now anticipates a long-term adjusted earnings per share growth rate in the mid-teens, beginning in 2014, up from the previous guidance of high single-digit to low double-digit growth.

The company also reaffirmed its long-term adjusted EBITDA outlook of high single-digit to low double-digit growth.

Wendy's also said it did not buy back any stock in 2012 or the first half of 2013, but intends to begin repurchasing shares in the third quarter.

In Tuesday's regular trading session, WEN is currently trading at $7.30, up $0.62 or 9.28% on a volume of 5.07 million shares.