February 4, 2010 / 12:50 PM / 8 years ago

UPDATE 5-Burger King profit tops Street view, shares rise

* Q2 EPS 37 cents; Street view 34 cents

* Q2 revenue up 2 percent to $645.4 mln

* Plans breakfast value offer in April

* Shares up more than 4 percent (Adds CEO comment; updates share activity)

By Lisa Baertlein

LOS ANGELES, Feb 4 (Reuters) - Fast-food chain operator Burger King Holdings Inc BKC.N posted quarterly results that topped analyst forecasts, helped by its $1 double cheeseburger offer and lower expenses, and shares jumped more than 4 percent.

The cheeseburger promotion helped drive more people into Burger King’s stores at a time when investors were concerned that high unemployment would reduce demand.

Sales at established U.S. Burger King restaurants fell during the quarter, but the drop was not as steep as the 8 percent decline posted by rival Yum Brands YUM.N, home to the Taco Bell, Pizza Hut and KFC chains. [ID:nN0356760]

Buckingham Research analyst Mitchell Speiser said the stock move was a reaction to “less worse than dire expectations.”

“Trends are still very weak and earnings estimates are still likely to come down, but not as much as feared,” Speiser said. “In my opinion there was nothing fundamentally better than expected to attract long-term interest in the stock.”

Burger King’s worldwide same-store sales were off 2 percent in the quarter, driven by a 3.3 percent decline in the United States and Canada.

Rival McDonald’s Corp MCD.N said last month U.S. same-store sales gained 1 percent in December after two months of declines. [ID:nN22203005]

Burger King, also known as the home of the Whopper, reported net income of $50.2 million, or 37 cents a share, for the second quarter ended on Dec. 31. That was up from $44.3 million, or 33 cents a share, a year earlier.

Results from the most recent quarter topped analysts’ expectation for a profit of 34 cents per share, according to Thomson Reuters I/B/E/S.

Burger King shares gained 75 cents to $18.25. McDonald’s fell 1.2 percent and Yum shed nearly 5 percent.

FAST-FOOD SLIPS

Revenue rose to $645.4 million, above analysts’ estimates for $634.8 million, helped by an increase in the number of Burger King restaurants. Worldwide restaurant margin also improved a better-than-expected 20 basis points to 13.8 percent.

Bernstein analyst Sara Senatore said a lower tax rate helped drive the profit beat. Earnings got an additional lift from lower interest expenses, a drop in food and paper costs as well as favorable currency exchange.

After weathering the U.S. economic downturn better than most other restaurant categories, the lower-priced fast-food segment has seen demand flag. Unemployment among young males and minority groups -- who account for a big share of fast-food sales -- is far worse than the 10 percent U.S. jobless rate.

Chief Executive John Chidsey said more people came into Burger King restaurants during the December quarter and bought promotional items like the $1 double cheeseburger. The downside was that those bargain-hunting diners spent less per visit.

“In this environment, your first job is to get people in the door,” said Chidsey.

The next step, he added, is getting those customers to spend money on things like higher-profit drinks, snacks, premium sandwiches or desserts. Along those lines, Burger King will begin advertising its Steakhouse XT burger nationwide later this month.

Burger King also plans to promote breakfast value deals in April, as McDonald’s continues promoting its new breakfast Dollar Menu.

As discounting rages, analysts continue to monitor friction between Burger King and its franchisees, who have complained that discounts and promotions used to lure more traffic are making it harder for them to turn profits.

Meanwhile, McDonald’s -- the industry’s 800-lb gorilla -- continues to grab share.

Earlier this week, McDonald’s Chief Executive Jim Skinner said December’s increase in U.S. same-store sales was a “sustainable result” in the longer term, despite a January lull. [ID:nLDE6101VB] (Reporting by Martinne Geller; Editing by Lisa Von Ahn, Dave Zimmerman, Gunna Dickson and Steve Orlofsky)

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