Restaurant Brands International Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Q3 Performance: Strong quarter with 4% comparable sales growth, 2.8% net restaurant growth, 6.9% system-wide sales growth, 8.8% organic adjusted operating income growth, and double-digit nominal EPS growth.
• Tim Hortons Canada: Excelled with breakfast leadership, menu innovation (e.g., 100% Canadian freshly cracked Scrambled Egg platform), and PM daypart expansion (e.g., $8.99 dinner deals).
• International Business: Showed strong execution in key markets with new product launches (e.g., France's Baby burger boxes, UK's Gordon Ramsay Wagyu burger) and marketing campaigns (e.g., Naruto promotion).
• Burger King US: Focused on Reclaim the Flame plan, menu innovation (e.g., Whopper By You platform), and operational improvements, with franchisee confidence near all-time highs.
• Popeyes: Working on operational improvements and shifting focus to core offerings to address softer results.
• Firehouse Subs: Continued strong growth with expanded footprint and enthusiastic franchisees.

Segment Performance

• Tim Hortons: Represents ~44% of operating profit. In Canada, comparable sales grew 4.2% in Q3, outperforming the Canadian QSR industry. Breakfast foods grew 6.5%, PM daypart expanded menu, and beverage sales reached record highs. Total beverage sales grew 4%, with iced lattes and fall beverage lineup contributing.
• International: Drives ~26% of operating profit. Same-store sales increased 6.5%, net restaurant growth 5.1%, system-wide sales growth over 12%. Outperformed in key markets like France, UK, Spain, Germany with new product launches and marketing campaigns.
• Burger King: Represents ~17% of operating profit. US comparable sales grew 3.2%, focused on menu innovation, operations, and remodels under the Reclaim the Flame plan.
• Popeyes: Results softer this quarter with US comparable sales down 2%, but working on operational improvements and shifting focus to core offerings.
• Firehouse Subs: Comparable sales up 2.6%, net restaurant growth 7.7%, system-wide sales growth 10.7% with expanded footprint in North America.

Guidance

• Tim Hortons Supply Chain Margins: Expected to average around 19% for full year, with Q4 softest in mid-17% range due to seasonality and higher inventory costs.
• Segment G&A: Excluding restaurant holdings, expected at low end of $600M-$620M.
• CapEx and Cash Inducements: 2025 CapEx and cash inducements expected at ~$400M, down from prior guidance of $400M-$450M.
• BK Carrols Margins: Impacted by 50 basis point ad-fund contribution step-up and commodity inflation, primarily elevated beef costs.
• Organic AOI Growth: Expect 8% plus organic AOI growth in 2025.

Risks

• Beef Costs: Elevated beef costs impacting Burger King US margins, temporary but causing short-term pressure as beef represents ~1/4 of Burger King US commodity basket.
• Refranchising Complexity: Complexity in refranchising some Burger King units and selling Burger King China, with refranchising timeline varying.
• Cyclical Nature of Beef Prices: Potential impact on profitability due to cyclical herd rebuilding in the US, though cattle futures showing signs of normalization.

Question and Answer

• Q: Dennis Geiger from UBS asked about Burger King U.S. turnaround trajectory and parallels to Tim Hortons.

A: Joshua Kobza and Patrick Doyle discussed listening to guests, franchisee alignment, and operational improvements similar to Tim Hortons' turnaround.

• Q: David Palmer from Evercore ISI asked about beef costs impact on cash flow and Burger King U.S. food safety incident.

A: Sami Siddiqui and Joshua Kobza discussed beef cost impact and sticking to the plan despite short-term pressure, and no indirect impact from past food safety incidents.

• Q: Danilo Gargiulo from AB Bernstein asked about protein latte launch in Canada.

A: Joshua Kobza discussed cold beverage innovation and protein latte performance as part of broader cold bev push.

• Q: Brian Bittner from Oppenheimer asked about Tim Hortons share trends and Canadian macro.

A: Joshua Kobza discussed share gains and fundamentals in Canada, including outperformance vs. industry and disciplined pricing.

• Q: Gregory Francfort from Guggenheim Securities asked about international business share gains.

A: Joshua Kobza discussed improvements in France, China, Japan with new product launches and local leadership changes.

• Q: John Ivankoe from JPMorgan asked about Burger King remodels and refranchising.

A: Joshua Kobza and Sami Siddiqui discussed remodel plans (400 remodels in 2025) and refranchising timeline, with Crown Your Career program for refranchising.

• Q: Christine Cho from Goldman Sachs asked about Burger King remodel sales trajectory.

A: Sami Siddiqui discussed remodel uplifts and expected 100 basis point continued uplift in year 2 post-remodel.

• Q: Andrew Charles from TD Cowen asked about BK store level cash flows and ad fund.

A: Joshua Kobza discussed ad fund extension and franchisee relationships, emphasizing strong ROI from advertising spend.

• Q: Sara Senatore from Bank of America asked about Tim Hortons loyalty members and beverage mix.

A: Joshua Kobza discussed loyalty member impact and beverage mix margins, noting shift to cold beverages but both products healthy for franchisees.

• Q: Brian Harbour from Morgan Stanley asked about Popeyes improvement hurdles.

A: Joshua Kobza discussed operational consistency and focus on core platforms to address softer Popeyes results.

• Q: Pratik Patel from Barclays asked about U.S. quick service category trade trends.

A: Joshua Kobza discussed income cohort trends and U.S. performance, noting no big departure in consumer trade patterns over the year.