The Wendy's Company Reports Final 2013 Results; Reaffirms 2014 Outlook

2014-03-05
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  • Restaurant News Resource Fourth-quarter net income of $33.1 million increased 25 percent compared to $26.4 million last year - Fourth-quarter diluted earnings per share of $0.08 increased 14 percent compared to $0.07 last year

     The Wendy's Company (NASDAQ: WEN) reported audited results for the full year ended Dec. 29, 2013. The Company had previously issued preliminary unaudited results for the 2013 fourth quarter and full year on Jan. 13, 2014. 

    The Company's fourth-quarter and full-year Adjusted EBITDA of $89.0 million and $367.1 million, respectively, remain unchanged from the preliminary results. Final reported results attributable to The Wendy's Company include:

    • Fourth-quarter net income of $33.1 million increased 25 percent compared to $26.4 million last year.
    • Fourth-quarter diluted earnings per share of $0.08 increased 14 percent compared to $0.07 last year.
    • Fourth-quarter Adjusted Earnings Per Share of $0.11 increased 22 percent compared to $0.09 last year.
    • Full-year net income of $45.5 million increased more than six times compared to $7.1 million last year.
    • Full-year diluted earnings per share of $0.11 increased more than five times compared to $0.02 last year.
    • Full-year Adjusted Earnings Per Share of $0.30 increased 76 percent compared to $0.17 last year.

    See "Disclosure Regarding Non-GAAP Financial Measures" below for a reconciliation of the non-GAAP measures included herein (i.e., Adjusted EBITDA and Adjusted Earnings Per Share).

    Brand Transformation Momentum Continues into 2014

    President and Chief Executive Officer Emil Brolick said the Company made continued strategic and financial progress in 2013. "During the past year, we accelerated the Wendy's® brand transformation with Image Activation, enhanced our Company-operated restaurant portfolio through System Optimization and introduced several successful new products while building our product pipeline," Brolick said. "These efforts resulted in 2013 North America Company-operated same-restaurant sales growth of 1.9 percent and record average annual sales of $1.51 million at North America Company-operated restaurants. Most importantly, the progress we've made with our various initiatives has positioned the Wendy's brand for further growth in 2014, as we expect to nearly double the pace of our Image Activation reimages, continue introducing innovative products and complete our System Optimization initiative."

    Company Reaffirms 2014 and Long-Term Outlook

    The Company is reiterating its outlook for 2014 Adjusted EBITDA of $390 million to $400 million, despite the adverse impact from winter storms during the first quarter. The Company also continues to expect 2014 Adjusted Earnings Per Share of $0.34 to $0.36

    Estimated 2014 Adjusted Earnings Per Share excludes approximately $40 million of anticipated pretax depreciation for existing assets that the Company expects to replace as part of the Image Activation initiative. The Company expects its total 2014 depreciation and amortization expense to decrease approximately 10 percent compared to 2013, including the impact of accelerated depreciation in both years, primarily as a result of the Company's System Optimization initiative.  

    Also included in the Company's 2014 outlook are the following assumptions:

    • Average same-restaurant sales growth of 2.5 to 3.5 percent at Company-operated restaurants.
    • Company-operated restaurant margin improvement of 140 to 160 basis points. This estimate includes the benefit of same-restaurant sales increases and cost-savings initiatives. The margin estimate also assumes flat commodity costs, with higher beef costs offset by lower chicken costs.
    • A reduction in interest expense of approximately $15 million, resulting from the Company's 2013 debt restructuring.
    • Capital expenditures of $280 to $290 million, including approximately $215 million for Company-operated Image Activation restaurants.

    The Company also reaffirms its previous long-term outlook of high-single-digit to low-double-digit Adjusted EBITDA growth, as well as mid-teens Adjusted Earnings Per Share growth. This guidance includes the following assumptions:

    • Annual same-restaurant sales growth of at least 3 percent beginning in 2015.
    • Adjusted EBITDA growth at the lower end of this range in 2014 through 2016, when the Company-operated Image Activation program peaks, requiring a temporary increase in growth-oriented capital. Due to the greater number of reimaged restaurants in 2014 and 2015, the Company anticipates an increase in lost operating weeks.
    • Adjusted EBITDA growth at the higher end of this range beginning in 2017, when the number of Company-operated Image Activation restaurants exceeds the number under construction.

    Company Now Expects To Complete System Optimization Initiative During First Quarter

    The Company previously announced that it plans to further optimize its restaurant ownership by selling certain Company-operated restaurants to franchisees. The Company expects to complete the sale of approximately 415 restaurants by the end of the first quarter and anticipates total proceeds of approximately $235 million, including $138 million received in 2013. As part of its System Optimization initiative, the Company sold 244 restaurants in 2013 and has sold, or has signed purchase agreements or letters of intent to sell, a total of 174 additional restaurants. 

    Company Plans to Nearly Double Pace of Image Activation Reimages in 2014

    The Company completed or initiated more than 200 Image Activation reimages of Company-operated and franchise-operated restaurants in 2013 and plans to nearly double the pace in 2014, with the reimaging of 200 Company-operated restaurants and 150 to 200 franchise-operated restaurants. The Company also expects 15 new Company-operated Image Activation restaurants and 45 new franchise-operated Image Activation restaurants in 2014. The Company continues to target the implementation of Image Activation in 85 percent of its Company-operated restaurants and 35 percent of the North America system by the end of 2017.

    Share Repurchases, Dividends, Refinancings Reflect Comprehensive Financial Management Strategy

    In 2013 the Company repurchased 8.7 million shares of its common stock at an average price of $7.93 per share. At the end of 2013, the Company had 392.8 million shares outstanding.

    In February 2014, the Company purchased 29.7 million shares of common stock at a purchase price of $9.25 per share pursuant to its $275 million modified Dutch auction tender offer. The shares purchased in the tender offer represented approximately 7.5 percent of the total number of shares outstanding as of Feb. 7, 2014. Subsequent to the completion of the tender offer, the Company had 366.2 million shares outstanding as of Feb. 21, 2014.

    On Feb. 20, 2014, the Company declared its regular quarterly cash dividend of $0.05 per share, payable on March 17, 2014 to stockholders of record as of March 3, 2014.  During the third quarter of 2013, the Company's Board of Directors authorized a 25 percent increase in the quarterly cash dividend rate from $0.04 to $0.05 per share. This followed a 100 percent increase in the dividend rate during 2012.  

    In addition, the Company expects to realize a total of approximately $50 million in ongoing annualized net interest expense savings from its 2012 and 2013 debt refinancings, including more than $20 million in annualized net interest expense savings from 2013 refinancing actions.

    "Our dividend increases and share repurchases, together with our recent debt refinancings, are important elements of our financial management strategy, which remains a strong complement to our organic growth initiatives," Chief Financial Officer Todd Penegor said. "We are confident our strong balance sheet, financial flexibility and excellent cash flow will enable us to comfortably fund our organic growth initiatives while returning capital to shareholders."

    Changes from 2013 Preliminary Results

    The Company's final reported 2013 fourth-quarter and full-year net income exceeded the preliminary ranges due to the recording of an adjustment to facilities action charges, net related to its system optimization initiative. The adjustment had the net impact of reducing expense from facilities action charges, which the Company excludes from Adjusted EBITDA and Adjusted Earnings Per Share.

    Disclosure Regarding Non-GAAP Financial Measures 

    Adjusted EBITDA and Adjusted Earnings Per Share, which exclude certain expenses, net of certain benefits, detailed in the reconciliation tables that accompany this release, are used by the Company as performance measures for benchmarking against the Company's peers and competitors, and as internal measures of business operating performance. The Company believes Adjusted EBITDA and Adjusted Earnings Per Share provide a meaningful perspective of the underlying operating performance of the Company's current business. Adjusted EBITDA and Adjusted Earnings Per Share are not recognized terms under U.S. Generally Accepted Accounting Principles ("GAAP"). Because all companies do not calculate Adjusted EBITDA and Adjusted Earnings Per Share (and similarly titled financial measures) in the same way, those measures as used by other companies may not be consistent with the way The Wendy's Company calculates such measures and should not be considered as alternative measures of net income or diluted earnings per share.

    Because certain income statement items needed to calculate net income vary from quarter to quarter, the Company is unable to provide projections of net income or diluted earnings per share, ora reconciliation of projected Adjusted EBITDA to projected net income or projected Adjusted Earnings Per Share to projected diluted earnings per share. The Company's presentation of Adjusted EBITDA and Adjusted Earnings Per Share does not replace the presentation of the Company's financial results in accordance with GAAP.

    About The Wendy's Company

    The Wendy's Company is the world's third-largest quick-service hamburger company. The Wendy's system includes more than 6,500 franchise and Company-operated restaurants in the United States and 28 countries and U.S. territories worldwide. 

     

     The Wendy's Company and Subsidiaries 

     Consolidated Statements of Operations 

     Three and Twelve Month Periods Ended December 29, 2013 and December 30, 2012 

     (In Thousands Except Per Share Amounts) 

     Three Months 

     Twelve Months 

    2013

    2012

    2013

    2012

    (Unaudited)

    (Unaudited)

     Revenues: 

     Sales 

    $   505,929

    $   553,943

    $    2,165,829

    $    2,198,323

     Franchise revenues 

    86,476

    75,936

    321,581

    306,919

    592,405

    629,879

    2,487,410

    2,505,242

     Costs and expenses: 

     Cost of sales 

    436,437

    464,276

    1,839,740

    1,881,248

     General and administrative 

    77,169

    69,984

    293,792

    287,808

     Depreciation and amortization 

    47,518

    36,840

    182,359

    146,976

     Facilities action (income) charges, net 

    (20,834)

    13,470

    10,856

    41,031

     Impairment of long-lived assets 

    10,552

    13,316

    15,879

    21,097

     Impairment of goodwill 

    9,397

    -

    9,397

    -

     Other operating expense (income), net 

    3,288

    (264)

    245

    4,335

    563,527

    597,622

    2,352,268

    2,382,495

     Operating profit 

    28,878

    32,257

    135,142

    122,747

     Interest expense 

    (13,464)

    (20,801)

    (69,012)

    (98,604)

     Loss on early extinguishment of debt 

    (7,544)

    -

    (28,563)

    (75,076)

     Investment income, net 

    21,202

    6,786

    23,565

    36,243

     Other income (expense), net 

    233

    551

    (2,080)

    1,565

     Income (loss) from continuing operations before income taxes and noncontrolling interests 

    29,305

    18,793

    59,052

    (13,125)

      Benefit from (provision for) income taxes 

    3,620

    6,616

    (14,154)

    21,083

     Income from continuing operations 

    32,925

    25,409

    44,898

    7,958

     Discontinued operations: 

     (Loss) income from discontinued operations, net of income taxes 

    (266)

    1,167

    (266)

    1,951

     Loss on disposal of discontinued operations, net of income taxes 

    -

    (188)

    -

    (442)

     Net (loss) income from discontinued operations 

    (266)

    979

    (266)

    1,509

     Net income 

    32,659

    26,388

    44,632

    9,467

     Net loss (income) attributable to noncontrolling interests 

    410

    -

    855

    (2,384)

     Net income attributable to The Wendy's Company 

    $     33,069

    $     26,388

    $         45,487

    $          7,083

     Basic income (loss) per share attributable to The Wendy's Company: 

     Continuing operations 

    $        0.09

    $        0.07

    $            0.12

    $            0.02

     Discontinued operations 

    (0.00)

    0.00

    (0.00)

    0.00

     Net income 

    $        0.08

    $        0.07

    $            0.12

    $            0.02

     Number of shares used to calculate basic income (loss) per share 

    392,088

    391,013

    392,585

    390,275

     Diluted income (loss) per share attributable to The Wendy's Company: 

     Continuing operations 

    $        0.08

    $        0.07

    $            0.11

    $            0.02

     Discontinued operations 

    (0.00)

    0.00

    (0.00)

    0.00

     Net income 

    $        0.08

    $        0.07

    $            0.11

    $            0.02

     Number of shares used to calculate diluted income (loss) per share 

    400,416

    392,640

    398,680

    392,140

    December 29,

     2013

    December 30,

     2012

     Balance Sheet Data: 

     Cash and cash equivalents 

    $       580,152

    $       453,361

     Total assets 

    4,363,040

    4,303,199

     Long-term debt, including current portion 

    1,463,828

    1,457,562

     Total stockholders' equity 

    1,929,486

    1,985,855

     

     

     

     

     

     

    Reconciliation of Adjusted Income and Adjusted Earnings Per Share from Continuing Operations to

    Net Income and Diluted Earnings Per Share Attributable to The Wendy's Company

    (In Thousands Except Per Share Amounts)

    (Unaudited)

    Three Months

    2013

    2012

    Per share

    Per share

    Adjusted income and adjusted earnings per share from continuing operations    

    $      44,082

    $      0.11

    $      33,629

    $      0.09

    (Less) plus:     

    Impairment of goodwill      

    (9,207)

    (0.02)

    -

    -

    Depreciation of assets that will be replaced as part of the Image Activation initiative     

    (8,510)

    (0.02)

    -

    -

    Pension withdrawal expense in cost of sales

    (8,286)

    (0.02)

    -

    -

    Impairment of long-lived assets      

    (6,567)

    (0.02)

    (8,216)

    (0.02)

    Loss on early extinguishment of debt      

    (4,692)

    (0.01)

    -

    -

    Facilities action (income) charges, net      

    11,555

    0.03

    (8,311)

    (0.02)

    Dividends from Arby's

    14,550

    0.03

    2,868

    0.01

    Benefits of prior years' tax matters        

    -

    -

    5,439

    0.01

       Total adjustments      

    (11,157)

    (0.03)

    (8,220)

    (0.02)

    Income from continuing operations       

    32,925

    0.08

    25,409

    0.07

    Net (loss) income from discontinued operations     

    (266)

    (0.00)

    979

    0.00

    Net income   

    32,659

    0.08

    26,388

    0.07

    Net loss attributable to noncontrolling interests      

    410

    0.00

    -

    -

    Net income and diluted earnings per share attributable to The Wendy's Company       

    $      33,069

    $      0.08

    $      26,388

    $      0.07

    Twelve Months

    2013

    2012

    Per share

    Per share

    Adjusted income and adjusted earnings per share from continuing operations    

    $    119,215

    $      0.30

    $      65,316

    $      0.17

    (Less) plus:      

    Facilities action (income) charges, net        

    (19,321)

    (0.05)

    (25,349)

    (0.07)

    Depreciation of assets that will be replaced as part of the Image Activation initiative       

    (23,822)

    (0.06)

    -

    -

    Loss on early extinguishment of debt        

    (17,829)

    (0.05)

    (46,547)

    (0.12)

    Impairment of long-lived assets        

    (9,899)

    (0.02)

    (13,017)

    (0.04)

    Impairment of goodwill

    (9,207)

    (0.02)

    -

    -

    Pension withdrawal expense in cost of sales

    (8,286)

    (0.02)

    -

    -

    (Loss) gain on sale of investment, net       

    (503)

    (0.00)

    17,978

    0.05

    Dividends from Arby's

    14,550

    0.03

    2,868

    0.01

    Benefits of prior years' tax matters         

    -

    -

    7,620

    0.02

    Costs associated with closed restaurants in other operating expense (income), net       

    -

    -

    (911)

    (0.00)

       Total adjustments        

    (74,317)

    (0.19)

    (57,358)

    (0.15)

    Income from continuing operations        

    44,898

    0.11

    7,958

    0.02

    Net (loss) income from discontinued operations        

    (266)

    (0.00)

    1,509

    0.00

    Net income        

    44,632

    0.11

    9,467

    0.02

    Net loss (income) attributable to noncontrolling interests      

    855

    0.00

    (2,384)

    (0.00)

    Net income and diluted earnings per share attributable to The Wendy's Company      

    $      45,487

    $      0.11

    $        7,083

    $      0.02

     

     



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