News

Wendy's Q4, FY 2017 results show big benefit from new tax code

February 22, 2018

The Wendy's Company preliminary unaudited Q4 results for the period ending Dec. 31 show North American average unit volume growth at an all-time high of $1.61 million. That's up 2.7 percent, triggering the board to authorize a 21 percent quarterly dividend rate increase and a $175 million share repurchase program, a news release said. The numbers for the fourth quarter show Wendy's benefited substantially from the recent tax code changes. 

"We are very proud of the fact that we have now recorded 20 consecutive quarters of positive same-restaurant sales in North America, [and] two consecutive years of positive global net new restaurant growth," President and CEO Todd Penegor said in the release. "Thanks to our significantly increased cash flows and resilient bottom line, we continue to reward shareholders through dividends and share repurchases, with $196 million of cash returned to shareholders in 2017."

Preliminary results include: 

• Q4 revenues dropped year over year from $309.9 million $309.2 million, with 90 fewer company-operated stores and thus lower overall sales. 
• Q4 net income grew more than 451 percent year over year, from $28.9 million to $159.3 million last year due to a lower effective tax rate after revaluation of deferred tax assets and liabilities at the lower U.S. corporate tax rate under the Tax Cuts and Jobs Act of 2017.
• Q4 company-operated restaurant margin fell from 18.8 percent in 2016 to 17.5 percent in 2017, largely due to higher labor and commodity costs.
• Adjusted EBITDA rose 14.2 percent year over year, from 91.1 million to $104 million . 
• Reported diluted earnings per share grew from $0.11 in 2016 to $0.64 in 2017.
• General and administrative expense fell year over year from $61.2 million to $51.9 million due to lower professional fees and system optimization initiative cost savings.
• Q4 operating profit dropped 15.9 percent year over year, from $79.2 million in 2016 to $66.6 million last yearmdue to system optimization and aforementioned factors. 
• Adjusted earnings per share were $0.11 in the Q4 2017, compared with $0.08 in Q4 2016. 

Preliminary FY 2017 financial highlights:

• Net income was $194.0 million in 2017, compared with $129.6 million in 2016. In addition to the items discussed above, the year-over-year increase of 49.7 percent resulted primarily from a decrease in the effective tax rate due to revaluing deferred tax assets and liabilities at the lower U.S. corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017.
• Total revenues were $1,223.4 million in 2017, compared with $1,435.4 million in 2016.
• Company-operated restaurant margin was 17.6 percent in 2017, compared with 19.1 percent in 2016.
• General and administrative expense was $208.6 million in 2017, compared with $245.9 million in 2016.
• Operating profit was $214.8 million in 2017, compared with $314.8 million in 2016.
• Adjusted EBITDA was $406.2 million in 2017, compared with $391.9 million in 2016.

In 2018, Wendy's expects sales growth of 2–2.5 percent, with commodity inflation of 1–2 percent and labor inflation of 3–4 percent. Company-operated restaurant margin is expected to be 17–18 percent, with G&A expenses of about $195 million.

Adjusted EBITDA is expected to grow 8–10 percent compared with recast 2017 results, to end up at approximately $420 million–$430 million. Adjusted EBITDA margin is expected to be approximately 33–34 percent.

Interest expense should be approximately $120 million, with a depreciation and amortization expense of approximately $128 million.

The adjusted tax rate is expected to be 23–25 percent, with adjusted earnings per share of approximately $0.54–$0.56. EPS growth is an increase of approximately 38–44 percent compared with recast 2017 results.

By the end of 2020, the company expects to have a global restaurant count of approximately 7,250, adjusted EBITDA margin of 37–39 percent, with approximately $300 million in free cash flow and capital expenditures of $65 million.