Give Triarc (NYSE: TRY) CEO Roland Smith credit for forthrightness. Less than a month after the company announced it would acquire Wendy (NYSE: WEN)'s -- and well before the deal has even closed -- he wrote a letter to the company's employees saying in effect "Welcome to our conglomerate, you're fired!" to borrow a line from Isadore Barmash's book.
Well, not exactly. Triarc -- which is the parent company of Arby's -- isn't a conglomerate, and his letter had a bit more tact. He wrote: "There will be job cuts at Wendy's. I don't know how to put it any other way and say that I am acting with integrity. We will continue to be truthful with you about these as they come up."
It's a bold strategy. Given Wendy's struggles in recent years, he'll need all the help he can get in making this acquisition work, including strong employee morale. While immediate job cuts might help the bottom line, the impact on the company's remaining employees could make it far from a no-brainer.
Smith is betting that straight talk will pay off, but most employees would probably prefer job security. This letter may lead to a less than friendly welcome when Triarc takes control.
McDonald's (NYSE: MCD) announced its same-store sales results for the month of April Thursday, and the data indicate a healthy fast-food business ("healthy fast food" -- isn't that an oxymoron?).
Global comps as a whole increased 5%. Comps for European locations increased 6.3%, and the Asia/Pacific/Middle East/Africa segment saw a 7.8% rise in same-store sales. McDonald's restaurants in the States increased an anemic 2%. The weak domestic sales really need to be addressed so that they can pull more weight and add to the cool story that is McDonald's.
The stock has been a pretty decent performer over the last several months, rising over 6% over the three-month timeframe, and over the one-month period, it is up over 7%. And the longer-period returns from the past are even more impressive. Imagine how McDonald's stock would perform if management figured out how to get people to visit the U.S.'s Golden Arches more often. I suppose April's performance should be praised since March saw a decline in U.S. comps, as this article makes plain, but that depreciation was the first one in five years, and that says to me that McDonald's needs to be careful.
It's all about the marketing, of course. There are a lot of choices out there -- Burger King (NYSE: BKC), Wendy's (NYSE: WEN) and Yum! Brands (NYSE: YUM) -- so I think promotion of the brand is key. Some will disagree and say that menus and pricing are the big drivers -- they are important, don't get me wrong, but perhaps McDonald's needs to take a cue from Burger King and its campaign with the creepy-king thing -- those commercials are clever. Still, if this comps reports says anything, it says that you shouldn't count the clown out -- McDonald's is a blue-chip stock that is near a 52-week high, and not only is it a great long-term/core holding, but it's also quite possibly an interesting shorter-term idea as well.
Disclosure: I don't own shares in any company mentioned here; positions can change at any time.
McDonald's (NYSE: MCD) may be the big brand name in the fast-food industry, but don't discount Burger King (NYSE: BKC). The King reported its fiscal Q3 numbers on Thursday, and they were pretty regal indeed.
Revenues increased 10%, and earnings per share did even better, rising 20% to 30 cents (that beat earnings by three pennies, says Briefing.com). Now, when talking about retail stores and fast-food joints, the issue of same-store sales always comes up, since it's such an important element to consider (be sure to keep in mind that comps must always be put in an overall context, especially if you are only measuring a one-month timeframe). Global comps increased 5.8% for the quarter, a good showing for Burger King which wants to become a force to be reckoned with around the world. The domestic side of things isn't doing too badly either as comps in the United States and Canada moved up 5.4%. Restaurant margins, however, decreased due to the challenging commodity-cost environment we all live in nowadays. Otherwise, I see these earnings as very positive for Burger King, and I am bullish on the stock.
Today's trading action was interrupted and then switched gears late morning after two unrelated pieces of worrisome news. Most importantly, I'd argue, reports surfaced that a Navy contracted ship fired warning shots at two fast-approaching Iranian vessels. Iran denied any hostilities over the incident (it must have been 'Fauxranians'). Oil shot up $2.43 to $118.49 per barrel. Also, consumer sentiment from University of Michigan (revised) was reported at a 25-year low at around the same time.
These are the unofficial closing prices today for major US index readings:
Baidu.com Inc., (ADR) (NYSE: BIDU) was a big gainer on a mixed day after earnings. The company beat earnings last night and saw an upgrade from Citigroup this morning. Shares rose 6% to $363.00 in the last minutes of trading.
MOST NOTEWORTHY: Northrop Grumman, Phase Forward and Celestica were today's noteworthy upgrades:
Cowen upgraded Northrop Grumman (NYSE: NOC) to Outperform from Neutral following the Q1 report based on accelerating growth. Shares were also upgraded at JP Morgan to Overweight from Neutral.
Friedman Billings upgraded Phase Forward (NASDAQ: PFWD) to Outperform from Market Perform following the solid Q1 report and views guidance as beatable.
CIBC raised Celestica (NYSE: CLS) to Sector Outperformer from Sector Performer following Q1 results, citing end markets that look stable.
OTHER UPGRADES:
JP Morgan upgraded the Consumer Discretionary Sector to Overweight from Underweight.
Wendy's (NYSE: WEN) was raised to Neutral from Sell at Goldman.
The Biggest Losers The mortgage meltdown and slumping auto sales hurt many Fortune 500 firms last year. In fact, 16 posted losses of at least $1 billion. Topping the list is General Motors which lost almost $38 billion over the past year. Other losers include Sprint Nextel, Merrill Lynch, AMD, Freddie Mac, Delphi and Ford Motor. The Fortune 500's biggest losers -FORTUNE The Midas of Misery Vulture investors are a changing breed. The new opportunists, with Harbinger's Phil Falcone in the vanguard, have more clout and more imagination. And they just might kick-start the economy. The Midas of Misery - BusinessWeek Serious Scavengers: These People Are Looking to Profit From the Misery of Others
Wendy's (NYSE: WEN) finally sold the company to Nelson Peltz. The price which Peltz company Triarc paid was about $26.78 per share only a 6% premium according to the AP. One of the reasons the firm went for so little may be that there were no other buyers. The Wall Street Journal writes that "The move puts an end to the year-long saga that began when Wendy's first said it would consider a sale last April after Mr. Peltz began pressuring the chain."
Peltz has gotten a very good deal and Wendy's shareholders have not. The chain's current stock price is near its 52-week low. Over the last six months, the company's shares are down about 23% while rivals Burger King (NYSE: BKC) and McDonald's (NYSE: MCD) are up about 5%. Of course, they are the market share leaders and deserve some premium for that.
But if fast food does well, especially in a poor economy when people cannot afford more expensive restaurants, Peltz will have picked up a prize. When a recovery comes around, Wendy's could become a very nice business and the billionaire will look like a genius.
Douglas A. McIntyre is an editor at 247wallst.com.
Dow Chemical (NYSE: DOW) reported a smaller-than-forecast 3% profit drop Thursday and said it would have a good second quarter. Higher feedstock and energy costs were blamed for the drop. The chemical giant reported earnings of 99 cents per share, beating the 94 cents estimate.
If two weeks ago some hoped we've seen the bottom of the subprime mortgage crisis, since then more problems, especially with European banks seem to pop. Credit Suisse (NYSE: CS) reported a wider-than-forecast loss of $2.1 billion on a $5.3 billion writeoff as the global effects of the U.S. subprime mortgage crisis continued to spread. Share of CS though are rising in premarket trading about 1.8% as the bank may have seen the worst.
Bank of America Corp. (NYSE: BAC) shareholders don't want the bank to proceed with the $4 billion acquision of Courntrywide Financial Corp. (NYSE: CFC), the mortgage lender that has become the poster child for the subprime mortgage problems. The have pleaded on Wednesday with the bank's CEO.
Yum! Brands (NYSE: YUM) reported Q1 numbers Tuesday after the bell, and the company came through with double-digit growth on the bottom line. Net sales increased 8%, and earnings per share, adjusted for special items, increased 19% to $0.42.
There's a lot of cool stuff in this report that shareholders will view in a positive light. The international story for Yum! is a good one, with operating profit for this part of the company increasing 18%. China continues to be a strong territory for the KFC, Taco Bell, and Pizza Hut brands -- as many have pointed out, Yum! is a great way to gain exposure to this market. And how about this -- management saw fit to buy back shares of the company to the tune of almost a billion bucks! That says something to shareholders, as does the increased guidance. Granted, Yum! upped the per-share expectation by only a couple of pennies to $1.87 (excluding items), but that's still the right direction, isn't it? Also, according to Briefing.com, the company beat Wall Street's expectations by two cents.
Yum!, which competes with McDonald's (NYSE: MCD), Burger King (NYSE: BKC), Wendy's (NYSE: WEN), and all manner of neighborhood eateries, needs to continue the good fight on the home front. It reversed a negative same-store sales trend this past quarter, but management must not rest on this nice stat -- Yum! must explore better marketing campaigns and branding tactics to keep the comps headed higher. Yum!'s stock is not far from a 52-week high, but I'm currently bullish on its prospects.
Disclosure: I own none of the companies mentioned here; positions can change at any time.
Nelson Peltz isn't too happy with Wendy's (NYSE: WEN), which quickly rejected two of his bids for the company, including a plan to combine Wendy's with Arby's, a fast-food chain owned by Triarc (NYSE: TRY), a company chaired by Mr. Peltz.
Normally I'm pretty sympathetic to the campaigns of activist investors, but Peltz has a pretty poor record on corporate governance. During his proxy fight with Heinz back in 2006, the company responded to his calls for change with this: "Triarc received a corporate governance rating of 21.5, exceeding only 21.5% of all companies in the S&P SmallCap 600 and ranking it in the bottom quartile. Separately, Corporate Library gave Triarc an 'F' on overall board effectiveness -- the lowest possible rating."
So it appears that Peltz may not be walking corporate governance talk. But then again, Wendy's has also been a prodigious destroyer of shareholder value of late, so this is kind of like trying to decide between leaving the kids with Britney or K-Fed.
MOST NOTEWORTHY: Invesco, Visa and Netscout Systems were today's noteworthy initiations:
Keefe Bruyette believes Invesco's (NYSE:IVZ) initiatives will drive significant revenue and operating leverage to any improvement in the operating environment. The firm started shares with an Outperform rating and $28 target. Visa was started ast Cowen with an Outperform rating, as they are positive on the Visa's growth prospects and attractive business model.
Keefe Bruyette also recommends owning Visa (NYSE:V), assuming coverage with an Outperform rating and $80 target, and established FY08, FY09, and FY10 EPS estimates of $1.89, $2.33 and $2.80.
Netscout Systems (NASDAQ:NTCT) was initiated at ThinkEquity with a Buy rating and $13 target. ThinkEquity believes Netscout is well positioned to outperform and win share in its addressable market niche following the Network General acquisition. Additionally, the firm views NTCT as an attractive takeover candidate for larger infrastructure management players.
OTHER INITIATIONS:
JP Morgan initiated Signature Bank (SBNY) with a Neutral rating.
Wendy's (WEN) was reinstated at Goldman with a Sell rating and $21 target.
McDonald (NYSE: MCD) has issued a press release recently concerning the use of cellphone coupon marketing. The fast-food juggernaut wants its consumers to have the ability to snag a coupon whenever they desire and by hooking up with a company called Cellfire, McDonald's is hoping it can establish a relationship with some of the hip texters out there.
Cellphone users who download the Cellfire app can then text a certain number and receive a special code good for a specific offer. According to the release, McDonald's fans can take advantage of a free iced coffee promotion through April 27 in certain locations in Utah, Wyoming, and Nevada.
McDonald's knows we're an on-the-go society, and it obviously wants to leverage the fact that mobile devices are no longer just for talking -- we text, we play games, we surf the net, and, as I recently observed, we can even shop on Amazon on our cells (I say "we," but I should point out that I do not own a cell phone, believe it or not). However, as I stated in my previous post, I'm not so certain that Amazon's text-shopping service will take off.
I was in a fast-food frame of mind last night, so I thought I'd check out Wendy's (NYSE: WEN) same-store sales report from last week. For the first quarter, Wendy's average same-store sales at franchise locations in the United States were essentially flat, declining by a mere 0.1%. However, in the year-ago period, the performance was a lot better, as comps increased 3.7%. Average same-store sales at company locations declined 1.6%; this compares to an increase of 3.8% in last year's quarter.
The early Easter holiday and inclement weather were sourced as reasons for the poor performance. Hmmm...not so sure about that. Wendy's might have just dropped the ball this time around. Hey, it's not easy competing with Burger King (NYSE: BKC) and McDonald's (NYSE: MCD). As a matter of fact, in the case of Burger King, you have to admit that it does have a pretty edgy marketing campaign currently supporting its brand equity (I love the company's humorous commercials).
Comps aren't everything to a fast-food chain's story, but this lackluster performance doesn't compel me to open the URL to my broker and place an order for shares of the company. Complicating things is the fact that Wendy's has expressed its desire to sell itself to a buyer. This makes the situation speculative, to me at least. For now, I'll stay away from Wendy's as a potential investment idea, but I do continue to watch McDonald's -- I've been perpetually interested in owning that one, but haven't pulled the trigger yet. I will admit, however, that Wendy's burgers are pretty cool...
Disclosure: I don't own shares in any of the companies mentioned; positions can change at any time.
CKE Restaurants (NYSE: CKR) reported earnings for the fourth quarter yesterday after the bell. Total revenue decreased 3% for the quarter, and net income from continuing operations was $0.00 per diluted share, which wasn't too good in comparison to last year's number, which was $0.17 per diluted share. Total revenue was flat for the year, and net income from continuing operations was $0.57 per diluted share versus $0.77 per diluted share in the previous fiscal year.
CKE Restaurants, which operates the Carl's Jr. and Hardee's brands, did not impress analysts, as earnings expectations for the quarter were missed by two pennies. I myself wasn't too impressed with the entire report. Same-store sales increased 0.9% at Carl's Jr. and 2% at Hardee's for 2007 -- I'm not going to jump up and down over that bit of news. In addition, costs are up because of inflationary pressures, and revenues have obviously been challenged. There's not a lot that I like about this story.
CKE's stock is certainly on the lower end of its 52-week range, but I can't say it is necessarily cheap; it closed yesterday at $12.45 -- the high for the year on the stock is $23.24. This is a situation that calls for an old standby: "There are better opportunities out there in this space." For me personally, if I'm looking at the burger business, I'm way more likely to consider a McDonald's (NYSE: MCD), a Burger King (NYSE: BKC), or a Wendy's (NYSE: WEN) before I entertain CKE as an investment idea. Although they don't do burgers (so far as I know), I'd even look at a Yum! Brands (NYSE: YUM) before CKE. These companies have better brand equities in my estimation. CKE may turn itself around, but I just wasn't impressed by my look at its data.
Disclosure: I own none of the companies mentioned here; positions can change at any time.
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