Wendy's Q2 Profit Down, But Results Beat Estimates; Lifts 2016 Adj. EPS View

(RTTNews) - Wendy's Co. (WEN) reported a profit for the second-quarter that declined 34.1 percent from last year, reflecting decrease in gain on disposal of discontinued operations, net of income taxes. The company raised its adjusted earnings per share outlook for 2016. It is on track to achieve 2020 North America system goals, adds adjusted EBITDA margin as new 2020 Company goal.

Both Adjusted earnings per share from continuing operations and revenue for the quarter beat analysts' expectations.

In the pre-market trade, WEN is trading at $9.80, down $0.39 or 3.83 percent.

Net income was $26.5 million for the second quarter of 2016, compared to $40.2 million in the second quarter of 2015. The 34.1 percent decrease resulted primarily from a year-over-year decrease in Gain on disposal of discontinued operations, net of income taxes. Reported earnings per share were $0.10 in the second quarter of 2016, compared to $0.11 in the second quarter of 2015.

Income from continuing operations was $26.5 million in the second quarter of 2016, compared to $24.8 million in the second quarter of 2015. The 6.9 percent increase resulted from year-over-year decreases in Loss on early extinguishment of debt and Provision for income taxes. Reported earnings per share from continuing operations were $0.10 in the second quarter of 2016, compared to $0.07 in the second quarter of 2015. The increase is primarily the result of a 27.1 percent year-over-year reduction in the weighted average diluted shares outstanding.

Adjusted earnings per share from continuing operations were $0.10 in the second quarter of 2016, compared to $0.08 in the second quarter of 2015. Analysts polled by Thomson Reuters expected the company to report earnings of $0.09 per share for the quarter. Analysts' estimates typically exclude special items.

Operating profit was $65.6 million in the second quarter of 2016, compared to $64.3 million in the second-quarter of 2015. The 2.0 percent increase resulted primarily from higher franchise revenues, a year-over-year decrease in Depreciation and amortization and lower Impairment of long-lived assets, partly offset by a year-over-year decrease in System optimization gains, net and a year-over-year increase in Other operating expense, net.

Revenues for the quarter declined to $382.72 million, from $489.53 million last year. Wall Street expected revenues of $367.56 million for the quarter. The 21.8 percent decrease resulted primarily from the ownership of 361 fewer Company-operated restaurants at the end of the 2016 second quarter compared to the beginning of the 2015 second quarter.

Same-restaurant sales increased 0.4 percent at North America system restaurants in the second quarter of 2016. On a two-year basis, second-quarter 2016 same-restaurant sales increased 2.6 percent for the North America system.

Franchise revenues were $123.5 million in the second quarter of 2016, compared to $104.5 million in the second quarter of 2015. The 18.2 percent increase resulted from higher rental income and royalty revenue primarily as a result of the Company's system optimization initiative.

The Company remains on track with its plan to reduce its Company-operated restaurant ownership to approximately 5 percent of the total system by the end of 2016. As part of this plan, the Company intends to sell a total of approximately 315 restaurants to franchisees during 2016. Through the end of the second quarter, the Company has sold a total of 55 restaurants. The Company now expects the third phase of system optimization to generate pretax proceeds of approximately $435 million.

The Company and its franchisees plan to reimage a total of 430 North America system restaurants and build 110 new North America restaurants in 2016. This is in addition to the 519 total North America system reimages and new restaurants built during 2015.

The company increased its outlook for 2016 adjusted earnings per share to $0.39 to $0.40 from its prior guidance of $0.38 to $0.40 and increasing its outlook for 2016 adjusted EBITDA to flat to up 1 percent compared to 2015 from its prior guidance of down 1 percent to up 1 percent. Analysts expect annual earnings of $0.39 per share.

The company now expects same-restaurant sales growth of approximately 1.0 to 2.0 percent for the North America system for 2016.

The company continues to expect to achieve North America system goals by the end of 2020: Average unit sales volumes of $2.0 million; Restaurant margins of 20 percent. The Company now expects to achieve adjusted EBITDA margin of 38 to 40 percent, an increase from its prior long-term target of greater than 35 percent.