Burger King Serves Up a Profit as Restaurant Margins Improve

Demand for premium burgers like the Texas Double Whopper and Angus Cheesy Bacon sandwich and a cheaper breakfast menu helped Burger King Holdings post a better-than-expected quarterly profit, sending its shares up nearly 8%.

The world's No. 2 hamburger chain behind McDonald's reported net income of $34 million, or 25 cents a share, for the third quarter ended on March 31, compared with a year-earlier net loss of $12 million, or 11 cents a share.

Wall Street analysts on average had been expecting earnings of 22 cents a share, according to Reuters Estimates.

Burger King, which is based in Miami, said revenue rose 9% to $539 million. Analysts were expecting $536.3 million.

Same-store sales, a key industry measure, rose 3.2% worldwide and climbed 2.6% in the United States and Canada.

New Products

Analysts were expecting a strong quarter for Burger King on the strength of its turnaround plans and innovative menu items.

"This is a really good result," said John Owens, who follows the restaurant industry for Morningstar. "Their turnaround continues to gain traction and same-store sales were pretty solid, but they continue to trail the industry leader in profitability per restaurant and productivity."

In recent months, Burger King has benefited from the introduction of a lower-priced "Value Menu" that has helped it compete with McDonald's Dollar Menu and Wendy's International's Super Value Menu.

The company launched a breakfast version of the Value Menu in February as it seeks to challenge McDonald's dominance in the fast-food industry during morning hours.

Burger King, which went public in May after restructuring itself under private equity ownership, is expanding aggressively internationally to countries such as Japan and Brazil.

In the last three years, Burger King has revitalized sales and improved shaky relations with franchisees thanks to a quirky advertising campaign and new premium burgers like the BK Stacker and the Value Menu.

"There's been a lot of consumer interest in premium burger offerings, and Burger King's promotions have been very popular with customers," Owens said.

A.G. Edwards analyst Steve West said he expected Burger King's cost-cutting initiatives and planned product launches to bolster earnings and same-store sales throughout 2007.

Burger King said it was on target to achieve its goals of increasing earnings by more than 20%, excluding interest expense, reorganization costs and other items, and adjusted
earnings before interest, taxes, depreciation and amortization by 10% to 12% this fiscal year.

The company also said it was on track to exceed its goal of increasing full-year revenue by 6% to 7%.

Burger King expects same-store sales to increase in the fourth quarter once a new U.S. late-night hours initiative goes into effect in May, Chief Executive John Chidsey said in a statement.

"We are ... confident about our fourth-quarter outlook," he said. "And results should be positively impacted by a full quarter of the breakfast value menu."

Earlier today Burger King shares rose to $24.46, their highest level since the company went public.