Wendy's (NASDAQ:WEN) Announces Earnings Results, Beats Estimates By $0.04 EPS

Key Points

• Wendy’s reported adjusted EPS of $0.13, beating the $0.09 consensus by $0.04, but EPS was down from $0.24 a year earlier. Revenue of $435.6 million fell short of analysts’ $531.3 million forecast and declined 0.5% year over year.
• Underlying U.S. performance remained weak: same-restaurant sales fell 5.7%, traffic dropped 11.9%, and adjusted EBITDA declined $24.6 million year over year to $113.4 million.
• As part of its turnaround, Wendy’s made breakfast optional for U.S. restaurants, estimating the change could add up to $200 million in restaurant-level EBITDA across company and franchise locations.

Wendy's (NASDAQ:WEN - Get Free Report) posted its quarterly earnings data on Thursday. The restaurant operator reported $0.13 earnings per share (EPS) for the quarter, topping the consensus estimate of $0.09 by $0.04, FiscalAI reports. Wendy's had a return on equity of 115.31% and a net margin of 5.72%. The company had revenue of $435.62 million for the quarter, compared to analysts' expectations of $531.28 million. During the same period in the previous year, the firm posted $0.24 EPS. Wendy's's revenue was down .5% compared to the same quarter last year.

Here are the key takeaways from Wendy's' conference call:

• U.S. same-restaurant sales fell 5.7% in Q3, with traffic down 11.9%; adjusted EBITDA declined $24.6 million year over year to $113.4 million. Sales trends improved 130 basis points sequentially, but management said results remain unsatisfactory.
• Wendy’s made breakfast optional for U.S. restaurants, saying franchisees can exit unprofitable locations and focus resources on other dayparts. The company estimates the change could add up to $200 million in restaurant-level EBITDA across company and franchise restaurants.
• Delivery tests generated low-double-digit to 20% sales lifts, and more than 90% of U.S. franchise restaurants are now participating in delivery promotions. Management also cited early improvement in sales trends during Q3 and into Q4, while cautioning that the turnaround is still in its early stages.
• International systemwide sales grew 3.5%, with 30 new restaurants opened in Q3 and 84 opened year to date through the quarter. Management highlighted continued international development opportunities, while noting same-restaurant sales weakness in Canada.
• Wendy’s ended the quarter with about $413 million in cash and net debt leverage of 5.2x, and expects leverage to remain elevated in the near term. Free cash flow through the first three quarters was $174.2 million, down $21.4 million year over year.

Wendy's Trading Up 3.8%

NASDAQ WEN traded up $0.29 during trading on Thursday, hitting $7.94. The stock had a trading volume of 12,069,191 shares, compared to its average volume of 10,958,167. The company has a quick ratio of 1.88, a current ratio of 1.90 and a debt-to-equity ratio of 27.95. The company has a market capitalization of $1.51 billion, a PE ratio of 12.03, a PEG ratio of 1.33 and a beta of 0.37. The firm has a 50 day moving average price of $6.97 and a 200 day moving average price of $7.37. Wendy's has a twelve month low of $5.94 and a twelve month high of $10.12.

Wendy's Cuts Dividend

The company also recently announced a quarterly dividend, which was paid on Tuesday, September 15th. Investors of record on Tuesday, September 1st were issued a dividend of $0.07 per share. This is a negative change from Wendy's's previous quarterly dividend of $0.14. The ex-dividend date was Tuesday, September 1st. This represents a $0.28 dividend on an annualized basis and a yield of 3.5%. Wendy's's dividend payout ratio (DPR) is 42.42%.

Analyst Upgrades and Downgrades

A number of analysts have recently issued reports on WEN shares. Guggenheim reaffirmed a "neutral" rating on shares of Wendy's in a research note on Tuesday, September 15th. Stephens reduced their price objective on Wendy's from $8.00 to $7.00 and set an "equal weight" rating for the company in a research note on Thursday, October 15th. UBS Group decreased their price objective on Wendy's from $8.00 to $6.50 and set a "neutral" rating on the stock in a report on Monday, October 26th. Weiss Ratings reaffirmed a "sell (d+)" rating on shares of Wendy's in a research note on Thursday, October 15th. Finally, Citigroup dropped their target price on shares of Wendy's from $8.25 to $6.75 and set a "neutral" rating for the company in a report on Friday, October 23rd. One investment analyst has rated the stock with a Buy rating, eleven have assigned a Hold rating and six have issued a Sell rating to the stock. Based on data from MarketBeat.com, the company presently has an average rating of "Reduce" and an average target price of $7.42.

Key Stories Impacting Wendy's

Here are the key news stories impacting Wendy's this week:

• Positive Sentiment: Wendy’s reported third-quarter earnings of $0.13 per share, above the $0.09 consensus estimate. It also introduced Dave’s Way, a multi-year plan to increase customer traffic and market share while improving restaurant profitability. Wendy’s Q3 earnings results
• Positive Sentiment: The company plans to acquire as many as 163 Meritage Hospitality Group restaurants, subject to a definitive agreement and other approvals. The deal could expand Wendy’s company-operated footprint, though it is not final. Wendy’s Meritage acquisition plan
• Neutral Sentiment: The board rejected a $7.35-per-share cash proposal from a Trian-led investor group, saying it undervalued Wendy’s and its turnaround potential. A shareholder-rights plan (“poison pill”) adds protection against a hostile takeover, but the rejection also removes a near-term cash-exit option for shareholders and leaves the outcome of any further bid uncertain. Wendy’s rejects Trian-led offer
• Negative Sentiment: Despite beating estimates, quarterly EPS was down from $0.24 a year earlier, and reports highlight continuing sales and customer-traffic challenges. The turnaround—including making breakfast offerings location-specific and refreshing menu items—will need to deliver sustained improvement. Wendy’s turnaround and sales challenges

Wendy's Company Profile

The Wendy's Company NASDAQ: WEN operates and franchises quick-service restaurants under the Wendy's brand. Its restaurants are known for hamburgers made with fresh, never-frozen beef, along with chicken sandwiches, salads, fries, breakfast items, desserts, and beverages.

Founded by Dave Thomas in 1969, Wendy's has grown into an international restaurant chain with locations primarily in the United States and Canada, as well as select markets in other countries. The company's restaurant system includes both company-operated and franchised locations.

In addition to its restaurant operations, Wendy's supports customers through digital ordering, delivery, loyalty programs, and mobile applications.

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