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Restaurant Brands International Inc. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Restaurant Brands International

Filing date:

02/21/2025

TLDR:

Restaurant Brands International Inc. (RBI) shows continued growth in system-wide sales but faces challenges with increased operating expenses and high debt levels. A ‘Hold’ recommendation is appropriate pending further assessment.

ELI5:

Restaurant Brands International, which owns places like Tim Hortons and Burger King, is growing, but they have a lot of debt and some costs are going up. It’s like they’re expanding their business, but also taking out loans and spending more money to do it.

Accession #:

0001618756-25-000087

Published on

Analyst Summary

  • System-wide sales growth slowed to 5.4% in 2024.
  • Comparable sales growth slowed to 2.3% in 2024.
  • Net restaurant growth slowed to 3.4% in 2024.
  • Revenue and operating income are increasing, but net income is down due to higher tax expenses and loss on early extinguishment of debt.
  • High level of long-term debt remains a concern.

Opportunities and Risks

  • Acquisitions of Carrols and Popeyes China are significant strategic moves, but integration risks and associated costs need to be monitored.
  • RBI’s reliance on franchisees presents both opportunities and challenges.
  • Company’s global operations expose it to significant foreign currency exchange rate fluctuations.
  • RBI’s high debt levels could limit its financial flexibility and increase its vulnerability to economic downturns.

Potential Implications

Company Performance

  • Monitor the integration of Carrols and Popeyes China and assess their impact on profitability.
  • Evaluate the effectiveness of the company’s debt management strategies and its ability to reduce financial leverage.
  • Track the company’s progress in expanding into new international markets and its ability to adapt to local consumer preferences.
  • Assess the impact of rising labor costs and supply chain disruptions on franchisee profitability.

Restaurant Brands International Inc. (QSR) 10-K Report Analysis – FY 2024

Executive Summary

This report analyzes Restaurant Brands International Inc.’s (RBI) Form 10-K filing for the fiscal year ended December 31, 2024. RBI demonstrates continued growth, driven by system-wide sales increases across its brands and strategic acquisitions. However, increased operating expenses, interest expenses, and income tax expenses have impacted net income. The company’s high debt levels and exposure to foreign currency fluctuations remain key risks. Overall, RBI appears to be executing its growth strategy effectively, but careful monitoring of financial leverage and macroeconomic factors is warranted. A ‘Hold’ recommendation is appropriate at this time, pending further assessment of the integration of recent acquisitions and the impact of global economic uncertainties.

Company Overview

Restaurant Brands International Inc. (RBI) is one of the world’s largest quick-service restaurant (QSR) companies, owning and franchising iconic brands such as Tim Hortons, Burger King, Popeyes, and Firehouse Subs. The company operates globally, with a significant presence in the U.S., Canada, and international markets. Recent developments include the acquisitions of Carrols Restaurant Group Inc. and Popeyes China, leading to the creation of a new operating segment, Restaurant Holdings.

Detailed Analysis

Financial Statement Analysis

Key Ratios and Trends:

  • System-wide Sales Growth: 5.4% (2024), 12.2% (2023), 12.9% (2022) – Demonstrates consistent growth, although slowing in 2024.
  • Comparable Sales Growth: 2.3% (2024), 8.1% (2023), 7.9% (2022) – Similar trend to system-wide sales, indicating organic growth.
  • Net Restaurant Growth: 3.4% (2024), 3.9% (2023), 4.4% (2022) – Indicates continued expansion of the restaurant base.
Metric 2024 ($M) 2023 ($M) 2022 ($M)
Total Revenue 8,406 7,022 6,505
Income from Operations 2,419 2,051 1,898
Net Income 1,445 1,718 1,482
Long-term Debt 13,455 12,854 N/A

Analysis: Revenue and operating income are increasing, but net income is down due to higher tax expenses and loss on early extinguishment of debt. The high level of long-term debt remains a concern.

MD&A Insights and Red Flags:

  • Acquisitions: The acquisitions of Carrols and Popeyes China are significant strategic moves, but integration risks and associated costs need to be monitored.
  • Restaurant Holdings Segment: The creation of this segment highlights the company’s focus on directly operating restaurants, which introduces new operational complexities and risks.
  • Franchise Model: RBI’s reliance on franchisees presents both opportunities and challenges. Franchisee profitability is crucial, but RBI has limited control over their operations.
  • Foreign Currency Risk: The company’s global operations expose it to significant foreign currency exchange rate fluctuations, which can impact revenue and profitability.
  • Debt Levels: RBI’s high debt levels could limit its financial flexibility and increase its vulnerability to economic downturns.

Uncommon Metrics:

  • Alternative Format Units: The company mentions “alternative format units” (e.g., self-serve kiosks) but does not provide detailed financial information about their performance.
  • Franchise Restaurant Leases: RBI leases or subleases a significant number of properties to franchisees. The terms of these leases and the company’s contributions to remodeling costs could impact cash flow.
  • Advertising Fund Management: The company manages advertising funds for its brands. The effectiveness of these funds and the level of franchisee contributions are important drivers of brand performance.

Qualitative and Quantitative Integration

Management emphasizes its strategic focus on Quality, Service, and Convenience. The financial results reflect investments in these areas, such as restaurant remodels and technology initiatives. However, the increased operating expenses and interest expenses suggest that these investments are impacting profitability. The company’s narrative is generally optimistic, but the financial data reveals some underlying challenges.

Risk and Opportunity Assessment

Risks:

  • Competition: Intense competition in the QSR industry could put pressure on prices and market share.
  • Economic Conditions: Economic slowdowns and changes in consumer spending patterns could negatively impact restaurant sales.
  • Food Safety: Food safety incidents could damage brand reputation and reduce sales.
  • Labor Costs: Rising labor costs and labor shortages could impact franchisee profitability.
  • Supply Chain Disruptions: Disruptions in the supply chain could increase costs and reduce availability of ingredients.
  • Cybersecurity: Information technology system failures or security breaches could interrupt operations and expose the company to litigation.
  • Tax Liabilities: Unanticipated tax liabilities could adversely affect profitability.
  • Climate Change: Changes in climate and weather patterns may have a negative effect on agricultural productivity which may result in decreased availability or less favorable pricing for certain commodities used in our products.

Opportunities:

  • International Expansion: Continued expansion into new and existing international markets could drive growth.
  • Digital Engagement: Leveraging technology to improve the guest experience and strengthen relationships with customers could increase sales.
  • Brand Innovation: Developing and launching new and innovative products could attract new customers and retain existing ones.
  • Refranchising: Successfully refranchising acquired restaurants could improve efficiency and profitability.

Conclusion and Actionable Insights

RBI is a well-established QSR company with a strong portfolio of brands and a global presence. The company is executing its growth strategy effectively, but faces several challenges, including high debt levels, exposure to foreign currency fluctuations, and increasing operating expenses. Investors should carefully monitor the company’s financial leverage, integration of recent acquisitions, and ability to navigate macroeconomic uncertainties.

Overall Assessment: Hold

Recommendations:

  • Monitor the integration of Carrols and Popeyes China and assess their impact on profitability.
  • Evaluate the effectiveness of the company’s debt management strategies and its ability to reduce financial leverage.
  • Track the company’s progress in expanding into new international markets and its ability to adapt to local consumer preferences.
  • Assess the impact of rising labor costs and supply chain disruptions on franchisee profitability.

Restaurant Brands International (QSR) Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Calculation: (Total Revenues – Supply Chain Cost of Sales – Company Restaurant Expenses) / Total Revenues = (8,406 – 2,180 – 1,328) / 8,406 = 58.27%
    • Trend: Previous year’s Gross Profit Margin = (7,022 – 2,193 – 242) / 7,022 = 65.32%. Percentage Change = (58.27% – 65.32%) / 65.32% = -10.80%
    • Industry: The restaurant industry typically has gross profit margins ranging from 60% to 80%. QSR’s gross profit margin is below the industry average.
  • Operating Profit Margin:

    • Calculation: Income from Operations / Total Revenues = 2,419 / 8,406 = 28.78%
    • Trend: Previous year’s Operating Profit Margin = 2,051 / 7,022 = 29.21%. Percentage Change = (28.78% – 29.21%) / 29.21% = -1.47%
    • Industry: The restaurant industry typically has operating profit margins ranging from 10% to 20%. QSR’s operating profit margin is above the industry average.
  • Net Profit Margin:

    • Calculation: Net Income / Total Revenues = 1,445 / 8,406 = 17.19%
    • Trend: Previous year’s Net Profit Margin = 1,718 / 7,022 = 24.47%. Percentage Change = (17.19% – 24.47%) / 24.47% = -29.75%
    • Industry: The restaurant industry typically has net profit margins ranging from 5% to 10%. QSR’s net profit margin is above the industry average.
  • Return on Assets (ROA):

    • Calculation: Net Income / Total Assets = 1,445 / 24,632 = 5.87%
    • Trend: Previous year’s ROA = 1,718 / 23,391 = 7.35%. Percentage Change = (5.87% – 7.35%) / 7.35% = -20.14%
    • Industry: The restaurant industry typically has ROA ranging from 3% to 6%. QSR’s ROA is within the industry average.
  • Return on Equity (ROE):

    • Calculation: Net Income / Total Shareholders’ Equity = 1,445 / 4,843 = 29.83%
    • Trend: Previous year’s ROE = 1,718 / 4,730 = 36.32%. Percentage Change = (29.83% – 36.32%) / 36.32% = -17.87%
    • Industry: The restaurant industry typically has ROE ranging from 10% to 20%. QSR’s ROE is significantly above the industry average.
  • Earnings Per Share (EPS) – Basic:

    • Calculation: Net Income Attributable to Common Shareholders / Weighted Average Shares Outstanding (Basic) = 1,021 / 319 = $3.20
    • Trend: Previous year’s EPS (Basic) = 1,190 / 312 = $3.81. Percentage Change = (3.20 – 3.81) / 3.81 = -15.99%
    • Industry: EPS varies widely. It’s best to compare this to competitors directly.
  • Earnings Per Share (EPS) – Diluted:

    • Calculation: Net Income Attributable to Common Shareholders / Weighted Average Shares Outstanding (Diluted) = 1,021 / 454 = $2.25
    • Trend: Previous year’s EPS (Diluted) = 1,190 / 456 = $2.61. Percentage Change = (2.25 – 2.61) / 2.61 = -13.79%
    • Industry: EPS varies widely. It’s best to compare this to competitors directly.

Liquidity

  • Current Ratio:

    • Calculation: Total Current Assets / Total Current Liabilities = 2,282 / 2,364 = 0.97
    • Trend: Previous year’s Current Ratio = 2,173 / 2,144 = 1.01. Percentage Change = (0.97 – 1.01) / 1.01 = -3.96%
    • Industry: A current ratio of 1.0 or greater is generally considered healthy. QSR’s current ratio is slightly below 1.0.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: (Total Current Assets – Inventories) / Total Current Liabilities = (2,282 – 142) / 2,364 = 0.91
    • Trend: Previous year’s Quick Ratio = (2,173 – 166) / 2,144 = 0.94. Percentage Change = (0.91 – 0.94) / 0.94 = -3.19%
    • Industry: A quick ratio of 0.8 to 1.0 is generally considered acceptable. QSR’s quick ratio is within the acceptable range.
  • Cash Ratio:

    • Calculation: Cash and Cash Equivalents / Total Current Liabilities = 1,334 / 2,364 = 0.56
    • Trend: Previous year’s Cash Ratio = 1,139 / 2,144 = 0.53. Percentage Change = (0.56 – 0.53) / 0.53 = 5.66%
    • Industry: A cash ratio of 0.5 or greater is generally considered good. QSR’s cash ratio is above 0.5.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Calculation: Total Liabilities / Total Shareholders’ Equity = 19,789 / 4,843 = 4.09
    • Trend: Previous year’s Debt-to-Equity Ratio = 18,661 / 4,730 = 3.95. Percentage Change = (4.09 – 3.95) / 3.95 = 3.54%
    • Industry: The restaurant industry typically has debt-to-equity ratios ranging from 1.0 to 3.0. QSR’s debt-to-equity ratio is above the industry average, indicating higher leverage.
  • Debt-to-Assets Ratio:

    • Calculation: Total Liabilities / Total Assets = 19,789 / 24,632 = 0.80
    • Trend: Previous year’s Debt-to-Assets Ratio = 18,661 / 23,391 = 0.80. Percentage Change = (0.80 – 0.80) / 0.80 = 0.00%
    • Industry: The restaurant industry typically has debt-to-assets ratios ranging from 0.4 to 0.6. QSR’s debt-to-assets ratio is above the industry average, indicating higher leverage.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: Income from Operations / Interest Expense, Net = 2,419 / 577 = 4.19
    • Trend: Previous year’s Interest Coverage Ratio = 2,051 / 582 = 3.52. Percentage Change = (4.19 – 3.52) / 3.52 = 19.03%
    • Industry: An interest coverage ratio of 3.0 or greater is generally considered healthy. QSR’s interest coverage ratio is above 3.0.

Activity/Efficiency

  • Inventory Turnover:

    • Calculation: Supply Chain Sales / Inventories, Net = 2,708 / 142 = 19.07
    • Trend: Previous year’s Inventory Turnover = 2,679 / 166 = 16.14. Percentage Change = (19.07 – 16.14) / 16.14 = 18.15%
    • Industry: Inventory turnover varies widely. It’s best to compare this to competitors directly.
  • Days Sales Outstanding (DSO):

    • Calculation: (Accounts and Notes Receivable / Total Revenues) * 365 = (698 / 8,406) * 365 = 30.26 days
    • Trend: Previous year’s DSO = (749 / 7,022) * 365 = 38.86 days. Percentage Change = (30.26 – 38.86) / 38.86 = -22.13%
    • Industry: DSO varies widely. It’s best to compare this to competitors directly.
  • Days Payable Outstanding (DPO):

    • Calculation: (Accounts and Drafts Payable / Supply Chain Sales) * 365 = (765 / 2,708) * 365 = 103.00 days
    • Trend: Previous year’s DPO = (790 / 2,679) * 365 = 107.71 days. Percentage Change = (103.00 – 107.71) / 107.71 = -4.37%
    • Industry: DPO varies widely. It’s best to compare this to competitors directly.
  • Asset Turnover:

    • Calculation: Total Revenues / Total Assets = 8,406 / 24,632 = 0.34
    • Trend: Previous year’s Asset Turnover = 7,022 / 23,391 = 0.30. Percentage Change = (0.34 – 0.30) / 0.30 = 13.33%
    • Industry: The restaurant industry typically has asset turnover ratios ranging from 0.5 to 1.0. QSR’s asset turnover ratio is below the industry average.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Calculation: Market Cap / Net Income Attributable to Common Shareholders = (62.31 * 324.426589) / 1,021 = 19.79
    • Industry: The restaurant industry typically has P/E ratios ranging from 15 to 25. QSR’s P/E ratio is within the industry average.
  • Price-to-Book Ratio (P/B):

    • Calculation: Market Cap / Total Shareholders’ Equity = (62.31 * 324.426589) / 4,843 = 4.17
    • Industry: The restaurant industry typically has P/B ratios ranging from 2 to 5. QSR’s P/B ratio is within the industry average.
  • Price-to-Sales Ratio (P/S):

    • Calculation: Market Cap / Total Revenues = (62.31 * 324.426589) / 8,406 = 2.40
    • Industry: The restaurant industry typically has P/S ratios ranging from 0.5 to 2.0. QSR’s P/S ratio is above the industry average.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: (Market Cap + Total Debt – Cash) / (Net Income + Interest Expense + Taxes + Depreciation & Amortization) = ((62.31 * 324.426589) + 13,642 – 1,334) / (1,445 + 577 + 364 + 264) = 14.89
    • Industry: The restaurant industry typically has EV/EBITDA ratios ranging from 10 to 15. QSR’s EV/EBITDA ratio is within the industry average.

Growth Rates

  • Revenue Growth:

    • Calculation: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = (8,406 – 7,022) / 7,022 = 19.71%
    • Industry: Revenue growth varies widely. It’s best to compare this to competitors directly.
  • Net Income Growth:

    • Calculation: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = (1,445 – 1,718) / 1,718 = -15.89%
    • Industry: Net income growth varies widely. It’s best to compare this to competitors directly.
  • EPS Growth:

    • Calculation: (Current Year EPS – Previous Year EPS) / Previous Year EPS = (3.20 – 3.81) / 3.81 = -15.99%
    • Industry: EPS growth varies widely. It’s best to compare this to competitors directly.

Other Relevant Metrics

  • System-wide Sales Growth:

    • Metric: This KPI reflects the overall sales performance of all restaurants, including franchised and company-owned locations.
    • Calculation: Provided directly in the filing. 2024: 5.4%, 2023: 12.2%, 2022: 12.9%
    • Trend: The system-wide sales growth decreased from 12.2% in 2023 to 5.4% in 2024.
    • Significance: A positive system-wide sales growth indicates the brand’s overall health and consumer demand. The decrease in growth rate may warrant further investigation.
  • Net Restaurant Growth:

    • Metric: This KPI reflects the percentage change in the total number of restaurants in the system.
    • Calculation: Provided directly in the filing. 2024: 3.4%, 2023: 3.9%, 2022: 4.4%
    • Trend: The net restaurant growth decreased from 3.9% in 2023 to 3.4% in 2024.
    • Significance: A positive net restaurant growth indicates the company’s ability to expand its footprint. The decrease in growth rate may warrant further investigation.
  • Adjusted Operating Income:

    • Metric: A non-GAAP measure that excludes certain items such as franchise agreement amortization, transaction costs, and restructuring fees.
    • Calculation: Income from Operations adjusted for specific items. 2024: $2,402 million, 2023: $2,200 million, 2022: $2,084 million
    • Trend: Adjusted Operating Income increased from $2,200 million in 2023 to $2,402 million in 2024.
    • Significance: This metric provides a clearer picture of the company’s core operating performance by excluding non-recurring or unusual items. The increase suggests improved operational efficiency.

2. Commentary

Restaurant Brands International’s (QSR) financial performance in 2024 shows a mixed picture. While revenue increased significantly, profitability metrics such as net profit margin, ROA, ROE, and EPS experienced declines. The company maintains a highly leveraged capital structure, as indicated by its debt-to-equity and debt-to-assets ratios, but its interest coverage ratio remains adequate. System-wide sales growth and net restaurant growth have slowed down, while adjusted operating income has improved. Overall, QSR demonstrates solid revenue generation but needs to focus on improving profitability and managing its debt effectively.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️