Tim Hortons owner eyes emerging market growth

The Big Three global fast-food chains are all of one mind when it comes to growth.

We  continue our look  with Restaurant Brands International (TSX: QSR)  which owns Tim Hortons.  After McDonald’s and Yum!,  RBI is the the third-largest global fast-food operator with  system wide sales of US $32 billion annually. It has the best dividend yield of the group and its shares have performed best this year.

Restaurant Brands International, which is based in Brazil, started with Burger King and Tim Hortons in 2014 and recently acquired Popeyes Louisiana Kitchen. Some 60% of RBI’s sales are outside the U.S. and Canada.

Background:  Restaurant Brands  operates in more than 100 countries and has 26,000 stores, of which 70% are Burger Kings and 19% are Tim Hortons. The other 11% are Popeye’s Louisiana Kitchen locations.

 Performance:  The shares jumped last week on strong earnings and are up 23% in the past 12 months, as of the time of writing.

Financials: RBI reported that system-wide sales grew nearly 9%. Weak results at Tim Hortons were offset by strong results at Burger King and Popeyes. Burger King achieved its highest quarterly sales growth since 2015. Popeyes turned in its strongest sales growth in nearly two decades.

Revenues of US $8.88 billion were 7.1% higher than a year ago. Net income of $351 million was 40.4% higher than the same period last year. Fully diluted earnings per share of $0.75 were 14% higher.

Recent developments:  In July, RBI announced an agreement to open 1,500 Popeyes restaurants in China over the next 10 years.

Popeyes is the last of RBI’s brands to enter the Chinese market. Burger King has been there since 2005 and now has more than 1,000 restaurants. Tim Hortons opened its first outlet in Shanghai in February.

In September, Burger King today announced an agreement with a partner to open restaurants in Estonia, Latvia, and Lithuania. The Baltic states are among the few remaining countries in Europe where Burger King doesn’t have a presence.

Burger King rolled out a meatless Whopper in August, while Tim Hortons abandoned its Beyond Meat burger just three months after introducing it. It continues sell a meatless breakfast sandwich. Restaurant Brands delivers through UberEats, GrubHub, and DoorDash.

Dividend: In April, RBI raised its quarterly dividend by 11.1%. The yield is 3.1%.

Outlook:  RBI has room to grow outside North America, especially with its Tim Hortons and Popeyes brands. That comes at a cost. With a p/e ratio of 26.59 investors have high expectations, although its dividend yield is best in class.

Tuesday:McDonald’s thrives in emerging markets
Wednesday: YUM bets on growth in China

This article appeared in the Nov. 4., 2019 edition of the Internet Wealth Builder newsletter.