Wendys Co : Earnings Review and Free Research Report: Wendy's Adjusted EPS Rocketed 50.0%, Beating Estimates

Research Desk Line-up: Ruby Tuesday Post Earnings Coverage

LONDON, UK / ACCESSWIRE / September 1, 2017 / Pro-Trader Daily has just published a free post-earnings coverage on The Wendy's Co. (NASDAQ: WEN), which can be viewed by registering at http://protraderdaily.com/optin/?symbol=WEN, following the Company's announcement of its second quarter 2017 financial results on August 09, 2017. The US burger chain marked its 18th consecutive quarter of positive same-restaurant sales and surpassed revenue estimates. Our daily stock reports are accessible for free, and with those to look forward today you also will be signing up for a complimentary member's account at:

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Earnings Reviewed

Wendy's total revenues were $320.3 million in Q2 2017 compared to $382.7 million in Q2 2016. The 16.3% decline in revenue was attributed to the ownership of 251 fewer Company-operated restaurants at the end of Q2 2017 compared to the beginning of Q2 2016. Wendy's revenue numbers exceeded analysts' estimates of $301.0 million.

During Q2 2017, Wendy's Company-operated restaurant margin was 19.6% compared to 21.9% in Q2 2016. The 230 basis-point decrease was primarily the result of increased labor rates and higher commodity costs. The Company's general and administrative (G&A) expense was $51.3 million in the reported quarter, down 16.1% compared to $61.1 million in the prior year's corresponding quarter, driven by cost savings related to the Company's system optimization initiative, lower professional fees and legal reserves, and a y-o-y fall in incentive compensation accruals.

Wendy's operating profit was $25.8 million in Q2 2017 compared to $65.6 million in Q2 2016. The 60.7% drop was attributed to system optimization losses that were related to the DavCo-NPC transactions.

Wendy's reported a net loss of $1.8 million in Q2 2017, compared to net income of $26.5 million in Q2 2016. The Company recorded a diluted loss per share of $0.01 in the reported quarter versus diluted earnings per share of $0.10 in the year ago comparable period. Wendy's adjusted earnings per share were $0.15 in Q2 2017, up 50% compared to $0.10 in Q2 2016. Adjusted EPS came in ahead of Wall Street's expectation of $0.13 per share.

The Company's adjusted EBITDA was $116.1 million in the reported quarter compared to $102.5 million in the year ago same period, despite the ownership of 251 fewer Company-operated restaurants at the end of Q2 2017 compared to the beginning of Q2 2016. Franchise fees driven by Buy and Flip activity also contributed to the 13.3% y-o-y growth in adjusted EBITDA. Wendy's adjusted EBITDA margin was 36.2% in Q2 2017 compared to 26.8% in Q2 2016. The 940 basis-point improvement reflects the positive impact of the Company's system optimization initiative.

Cash Matters

Wendy's year-to-date cash flows from operations through Q2 2017 were $120.6 million, up 14.0% compared to $105.8 million through Q2 2016, attributed to the result of an increase in net income adjusted for non-cash expenses and a favorable change in working capital. The Company's year-to-date capital expenditures through the reported quarter were $32.1 million compared to $68.5 million through the year ago same period.

Wendy's year-to-date free cash flow through Q2 2017 was $88.5 million, compared to $37.3 million through Q2 2016.

Wendy's had repurchased 2.3 million shares for $34.6 million in Q2 2017 at an average price of $15.11 per share. As of the end of the quarter, the Company had approximately $98 million remaining on its existing $150 million share repurchase authorization, which expires March 04, 2018.

DavCo-NPC transactions

On June 01, 2017, Wendy's successfully completed a series of transactions of strategic importance. Under the transactions, the Company acquired 140 restaurants in the Maryland, Virginia, and Washington, D.C. markets from DavCo Restaurants, LLC ("DavCo"), which were immediately sold to NPC International, Inc. ("NPC"). Wendy's did not operate the restaurants prior to the disposition to NPC. As part of the transaction, NPC has agreed to remodel 90 restaurants by the end of 2021 and build 15 new restaurants by the end of 2022.

The acquisition of Wendy's restaurants from DavCo was not contingent on executing the sale agreement with NPC; as such, the Company accounted for the transactions as an acquisition and subsequent disposition of a business. Due to the unique nature of the transactions, the Company incurred a total pre-tax loss of $43.1 million and a net cash outflow, exclusive of franchise fees received, of $17.8 million in Q2 2017.

G&A expense savings initiative

During Q2 2017, Wendy's commenced its previously announced G&A expense savings initiative in order to further reduce G&A expense to approximately 1.5% of global system wide sales by 2020. The Company recognized costs totaling $17.2 million during the reported quarter, which primarily included severance and related employee costs and share-based compensation.

Wendy's did not incur significant cash expenditures in Q2 2017, however it expects cash expenditures to begin in H2 2017, and expects to incur total costs aggregating approximately $28 million to $33 million, of which $23 million to $27 million will be cash expenditures.

Outlook

For 2017, Wendy's is forecasting Company-operated restaurant margin of approximately 18.0% to 18.5% and net franchise rental income of approximately $100 million to $105 million. The Company is expecting adjusted EBITDA in the range of approximately $404 million to $410 million, and same-restaurant sales growth of approximately 2% to 3% for the North America system.

For FY17, Wendy's is anticipating adjusted earnings per share of approximately $0.45 to $0.47, an increase of approximately 13% to 18% on a y-o-y basis; cash flows from operations of approximately $240 million to $275 million; capital expenditures of approximately $80 million to $90 million; and free cash flow of approximately $160 million to $185 million.

Stock Performance

On Thursday, August 31, 2017, the stock closed the trading session at $14.92, marginally climbing 0.67% from its previous closing price of $14.82. A total volume of 2.66 million shares have exchanged hands, which was higher than the 3-month average volume of 2.61 million shares. Wendy's' stock price soared 10.03% in the past six months and 46.42% in the previous twelve months. Furthermore, since the start of the year, shares of the Company have gained 10.36%. The stock is trading at a PE ratio of 39.58 and has a dividend yield of 1.88%. At Thursday's closing price, the stock's net capitalization stands at $3.66 billion.

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