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Restaurant Brands International Limited Partnership 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:

RBI’s 2024 revenue grew due to system-wide sales and acquisitions, but net income decreased due to higher taxes. The company focuses on refranchising Burger King and faces risks from debt and competition.

ELI5:

RBI, the company behind Tim Hortons and Burger King, made more money overall, but earned less profit because they paid more in taxes. They’re trying to grow by selling some of their Burger King restaurants to other business owners.

Accession #:

0001618755-25-000010

Published on

Analyst Summary

  • Total Revenue increased by 19.7% to $8,406 million.
  • Net Income decreased by 15.9% to $1,445 million.
  • Debt-to-Equity Ratio is approximately 4.09, indicating high leverage.
  • Effective Tax Rate increased significantly from -18.2% to 20.1%.
  • Comparable sales for Firehouse Subs were down 1.1%.
  • System-wide sales growth slowed to 5.4% in 2024.
  • Comparable sales increased by 2.3% in 2024.
  • Net restaurant growth was 3.4% in 2024.
  • Gross Profit Margin decreased by 9.85% to 35.97%.
  • Operating Profit Margin decreased by 1.47% to 28.78%.
  • Net Profit Margin decreased by 29.75% to 17.19%.
  • Return on Assets (ROA) decreased by 20.14% to 5.87%.
  • Return on Equity (ROE) decreased by 17.84% to 29.84%.
  • Current Ratio decreased by 3.96% to 0.97.
  • Quick Ratio decreased by 3.19% to 0.91.
  • Cash Ratio increased by 5.66% to 0.56.
  • Debt-to-Equity Ratio increased by 3.54% to 4.09.
  • Debt-to-Assets Ratio remained constant at 0.80.
  • Interest Coverage Ratio increased by 19.03% to 4.19.
  • Asset Turnover increased by 13.33% to 0.34.
  • Price-to-Earnings Ratio (P/E) is 14.14.
  • Price-to-Book Ratio (P/B) is 4.22.
  • Price-to-Sales Ratio (P/S) is 2.43.
  • Enterprise Value to EBITDA (EV/EBITDA) is 12.36.

Opportunities and Risks

  • Intense competition in the QSR industry could negatively impact market share and profitability.
  • Economic downturns and changes in consumer spending habits could reduce restaurant sales.
  • Food-borne illnesses or negative publicity regarding the health effects of fast food could harm brand reputation and reduce demand.
  • Reliance on franchisees and their ability to operate restaurants effectively is crucial, and any shortcomings could damage brand reputation.
  • Difficulties in attracting and retaining qualified employees, as well as potential joint employer liability, could increase costs and disrupt operations.
  • Information technology system failures or breaches of network security may interrupt operations, cause reputational harm, subject us to increased operating costs and expose us to litigation.
  • Unanticipated tax liabilities or changes in tax laws could adversely affect profitability.
  • Continued international development with strategic partners and joint ventures offers significant growth potential.
  • Investing in digital technology and loyalty programs can enhance the guest experience and drive sales.
  • Refranchising remodeled Burger King restaurants to motivated, local franchisees could improve operational efficiency and profitability.

Potential Implications

Company Performance

  • Integrating acquisitions and managing a highly leveraged balance sheet presents challenges.
  • Refranchising strategy for Burger King and finding partners for China operations are key to future success.
  • Slowing system-wide sales growth, comparable sales, and net restaurant growth may impact future performance.
  • The acquisition of Carrols Restaurant Group is a significant event that could impact future performance.

SEC Filing Report: Restaurant Brands International Limited Partnership (RBI) – 10-K for FY2024

Executive Summary

This report analyzes RBI’s 10-K filing for the fiscal year ended December 31, 2024. Key findings include revenue growth driven by system-wide sales increases and acquisitions, offset by unfavorable currency exchange rates. Operating income increased, but net income decreased due to higher income tax expenses. The company is strategically focusing on refranchising acquired Burger King restaurants and finding partners for its China operations. Overall, the company appears to be executing its growth strategy, but faces risks related to debt, competition, and global operations. A hold rating is recommended, pending further clarity on the integration of recent acquisitions and the refranchising strategy.

Company Overview

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

Detailed Analysis

Financial Statement Analysis

The following table summarizes key financial data from the 10-K:

Metric 2024 2023 2022 Change (2024 vs 2023)
Total Revenue (Millions USD) $8,406 $7,022 $6,505 +19.7%
Net Income (Millions USD) $1,445 $1,718 $1,482 -15.9%
Total Assets (Millions USD) $24,632 $23,391 N/A +5.3%
Long-term Debt (Millions USD) $13,455 $12,854 N/A +4.7%

Key Ratios:

  • Debt-to-Equity Ratio: Calculated using total liabilities and total equity, the ratio is approximately 4.09 in 2024, indicating a high level of leverage.
  • Effective Tax Rate: Increased significantly from -18.2% in 2023 to 20.1% in 2024, impacting net income.

Management’s Discussion and Analysis (MD&A) Insights

  • Management highlights the strategic focus on Quality, Service, and Convenience as core pillars for growth.
  • The creation of the Restaurant Holdings segment reflects a strategic shift towards operating more company-owned restaurants, particularly Burger King restaurants acquired from Carrols.
  • The company intends to refranchise the majority of the acquired Burger King restaurants after remodeling.
  • Management acknowledges the impact of foreign currency fluctuations on reported results.

Red Flags and Uncommon Metrics

  • High Debt Level: The company’s significant debt burden remains a concern, potentially limiting financial flexibility.
  • Loss on Early Extinguishment of Debt: Indicates costs associated with debt refinancing activities.
  • Negative Comparable Sales in Firehouse Subs: Comparable sales for Firehouse Subs were down 1.1%, indicating potential challenges for this brand.
  • Geopolitical Risks: The filing mentions the war in Ukraine and conflicts in the Middle East as potential risks, highlighting the vulnerability of global operations to unforeseen events.

Risk and Opportunity Assessment

Risks

  • Competition: Intense competition in the QSR industry could negatively impact market share and profitability.
  • Economic Conditions: Economic downturns and changes in consumer spending habits could reduce restaurant sales.
  • Food Safety and Health Concerns: Food-borne illnesses or negative publicity regarding the health effects of fast food could harm brand reputation and reduce demand.
  • Franchisee Performance: Reliance on franchisees and their ability to operate restaurants effectively is crucial, and any shortcomings could damage brand reputation.
  • Labor Challenges: Difficulties in attracting and retaining qualified employees, as well as potential joint employer liability, could increase costs and disrupt operations.
  • Cybersecurity: Information technology system failures or breaches of network security may interrupt operations, cause reputational harm, subject us to increased operating costs and expose us to litigation.
  • Taxation: Unanticipated tax liabilities or changes in tax laws could adversely affect profitability.

Opportunities

  • International Expansion: Continued international development with strategic partners and joint ventures offers significant growth potential.
  • Digital Engagement: Investing in digital technology and loyalty programs can enhance the guest experience and drive sales.
  • Refranchising Strategy: Refranchising remodeled Burger King restaurants to motivated, local franchisees could improve operational efficiency and profitability.

Conclusion and Actionable Insights

RBI’s 2024 performance reflects a company in transition, balancing growth through acquisitions with the challenges of integrating new operations and managing a highly leveraged balance sheet. While revenue growth is positive, the decline in net income and the presence of several risk factors warrant caution. The refranchising strategy for Burger King and the ability to find partners for the China operations are key to future success.

Overall Assessment: Hold. Monitor the company’s progress in integrating acquisitions, executing its refranchising strategy, and managing its debt burden. Further analysis of segment-level performance and management’s commentary on future outlook is recommended before making a buy or sell decision.

Financial Analysis of Restaurant Brands International (RSTRF) – 2024 Annual Report

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Ratio/Metric: Total Revenue (8,406) – (Supply chain cost of sales (2,180) + Company restaurant expenses (1,328) + Franchise and property expenses (544) + Advertising expenses and other services (1,330)) / Total Revenue (8,406) = (8,406 – 5,382) / 8,406 = 3,024 / 8,406 = 35.97%
    • Trend: 2023 Gross Profit Margin = (7,022 – (2,193 + 242 + 512 + 1,273)) / 7,022 = (7,022 – 4,220) / 7,022 = 2,802 / 7,022 = 39.90%. Percentage Change: (35.97% – 39.90%) / 39.90% = -9.85%
    • Industry: The restaurant industry typically has gross profit margins ranging from 25% to 50%. RBI’s gross profit margin of 35.97% is within this range.
  • Operating Profit Margin:

    • Ratio/Metric: Income from Operations (2,419) / Total Revenue (8,406) = 28.78%
    • Trend: 2023 Operating Profit Margin = 2,051 / 7,022 = 29.21%. Percentage Change: (28.78% – 29.21%) / 29.21% = -1.47%
    • Industry: A good operating profit margin for the restaurant industry is typically between 10% and 20%. RBI’s operating profit margin of 28.78% is very strong, indicating efficient operations.
  • Net Profit Margin:

    • Ratio/Metric: Net Income (1,445) / Total Revenue (8,406) = 17.19%
    • Trend: 2023 Net Profit Margin = 1,718 / 7,022 = 24.47%. Percentage Change: (17.19% – 24.47%) / 24.47% = -29.75%
    • Industry: The average net profit margin for the restaurant industry is typically between 3% and 10%. RBI’s net profit margin of 17.19% is very high, but decreased significantly from 2023.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Income (1,445) / Total Assets (24,632) = 5.87%
    • Trend: 2023 ROA = 1,718 / 23,391 = 7.35%. Percentage Change: (5.87% – 7.35%) / 7.35% = -20.14%
    • Industry: The average ROA for the restaurant industry is typically between 2% and 5%. RBI’s ROA of 5.87% is above average, but decreased significantly from 2023.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Income (1,445) / Total Equity (4,843) = 29.84%
    • Trend: 2023 ROE = 1,718 / 4,730 = 36.32%. Percentage Change: (29.84% – 36.32%) / 36.32% = -17.84%
    • Industry: The average ROE for the restaurant industry is typically between 10% and 15%. RBI’s ROE of 29.84% is very high, but decreased significantly from 2023.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Class A Common Units: $5.00, Partnership Exchangeable Units: $3.21
    • Trend: 2023 Class A Common Units: $5.89, Partnership Exchangeable Units: $3.78. Percentage Change: Class A Common Units: (5.00 – 5.89) / 5.89 = -15.11%, Partnership Exchangeable Units: (3.21 – 3.78) / 3.78 = -15.08%
    • Industry: EPS varies widely depending on the company.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Total Current Assets (2,282) / Total Current Liabilities (2,364) = 0.97
    • Trend: 2023 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. RBI’s current ratio of 0.97 is slightly below this benchmark.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Total Current Assets (2,282) – Inventories (142)) / Total Current Liabilities (2,364) = 2,140 / 2,364 = 0.91
    • Trend: 2023 Quick Ratio = (2,173 – 166) / 2,144 = 2,007 / 2,144 = 0.94. Percentage Change: (0.91 – 0.94) / 0.94 = -3.19%
    • Industry: A quick ratio of 1.0 or greater is generally considered healthy. RBI’s quick ratio of 0.91 is slightly below this benchmark.
  • Cash Ratio:

    • Ratio/Metric: Cash and Cash Equivalents (1,334) / Total Current Liabilities (2,364) = 0.56
    • Trend: 2023 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 healthy. RBI’s cash ratio of 0.56 is slightly above this benchmark.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Liabilities (19,789) / Total Equity (4,843) = 4.09
    • Trend: 2023 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 between 1.0 and 3.0. RBI’s debt-to-equity ratio of 4.09 is high, indicating a significant reliance on debt financing.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Liabilities (19,789) / Total Assets (24,632) = 0.80
    • Trend: 2023 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 between 0.4 and 0.6. RBI’s debt-to-assets ratio of 0.80 is high, indicating a significant portion of assets are financed by debt.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: Income from Operations (2,419) / Interest Expense, Net (577) = 4.19
    • Trend: 2023 Interest Coverage Ratio = 2,051 / 582 = 3.52. Percentage Change: (4.19 – 3.52) / 3.52 = 19.03%
    • Industry: An interest coverage ratio of 2.0 or greater is generally considered healthy. RBI’s interest coverage ratio of 4.19 indicates a good ability to cover interest expenses.

Activity/Efficiency

  • Asset Turnover:

    • Ratio/Metric: Total Revenue (8,406) / Total Assets (24,632) = 0.34
    • Trend: 2023 Asset Turnover = 7,022 / 23,391 = 0.30. Percentage Change: (0.34 – 0.30) / 0.30 = 13.33%
    • Industry: The asset turnover ratio for the restaurant industry is typically between 0.5 and 1.5. RBI’s asset turnover ratio of 0.34 is low, indicating that the company is not generating a lot of revenue for each dollar of assets.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Market Cap (60.89 * 335.603 million shares = 20,434.83 million) / Net Income (1,445) = 14.14
    • Trend: Not enough information to calculate previous P/E
    • Industry: The average P/E ratio for the restaurant industry is typically between 15 and 25. RBI’s P/E ratio of 14.14 is below average.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Market Cap (20,434.83) / Total Equity (4,843) = 4.22
    • Trend: Not enough information to calculate previous P/B
    • Industry: The average P/B ratio for the restaurant industry is typically between 2 and 4. RBI’s P/B ratio of 4.22 is slightly above average.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap (20,434.83) / Total Revenue (8,406) = 2.43
    • Trend: Not enough information to calculate previous P/S
    • Industry: The average P/S ratio for the restaurant industry is typically between 0.5 and 2.0. RBI’s P/S ratio of 2.43 is above average.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: EV = Market Cap (20,434.83) + Total Debt (13,642) – Cash and Equivalents (1,334) = 32,742.83. EBITDA = Net Income (1,445) + Interest Expense, Net (577) + Income Tax Expense (364) + Depreciation and Amortization (264) = 2,650. EV/EBITDA = 32,742.83 / 2,650 = 12.36
    • Trend: Not enough information to calculate previous EV/EBITDA
    • Industry: The average EV/EBITDA ratio for the restaurant industry is typically between 8 and 12. RBI’s EV/EBITDA ratio of 12.36 is slightly above average.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: (2024 Revenue (8,406) – 2023 Revenue (7,022)) / 2023 Revenue (7,022) = 1,384 / 7,022 = 19.71%
    • Industry: Revenue growth varies widely depending on the company and market conditions.
  • Net Income Growth:

    • Ratio/Metric: (2024 Net Income (1,445) – 2023 Net Income (1,718)) / 2023 Net Income (1,718) = -273 / 1,718 = -15.89%
    • Industry: Net income growth varies widely depending on the company and market conditions.
  • EPS Growth:

    • Ratio/Metric: Class A Common Units: (5.00 – 5.89) / 5.89 = -15.11%, Partnership Exchangeable Units: (3.21 – 3.78) / 3.78 = -15.08%
    • Industry: EPS growth varies widely depending on the company and market conditions.

Other Relevant Metrics

  • System-wide Sales Growth: The company reported system-wide sales growth of 5.4% in 2024, compared to 12.2% in 2023 and 12.9% in 2022. This indicates a slowing growth rate.
  • Comparable Sales: Comparable sales increased by 2.3% in 2024, compared to 8.1% in 2023 and 7.9% in 2022. This also indicates a slowing growth rate.
  • Net Restaurant Growth: Net restaurant growth was 3.4% in 2024, compared to 3.9% in 2023 and 4.4% in 2022. This also indicates a slowing growth rate.
  • RH Transaction Costs: RH Transaction costs were $22 million in 2024, compared to $0 in 2023 and 2022.
  • FHS Transaction Costs: FHS Transaction costs were $0 million in 2024, compared to $19 million in 2023 and $24 million in 2022.
  • Corporate Restructuring and Advisory Fees: Corporate Restructuring and Advisory Fees were $20 million in 2024, compared to $38 million in 2023 and $46 million in 2022.
  • Carrols Restaurant Group Acquisition: In 2024, RBI purchased Carrols Restaurant Group for a total consideration of $648 million.

2. Commentary

Restaurant Brands International’s 2024 financial performance reveals a mixed picture. While revenue experienced solid growth, profitability metrics such as net profit margin, ROA, and ROE declined significantly compared to the previous year. The company maintains a high level of debt, as indicated by its debt-to-equity and debt-to-assets ratios, but its interest coverage ratio suggests a manageable ability to meet its debt obligations. System-wide sales growth, comparable sales, and net restaurant growth are slowing. The acquisition of Carrols Restaurant Group is a significant event that could impact future performance.

⚠️ 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. ⚠️