Can Burger King Finally Beat McDonald's?

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Burger King financial resultsBurger King Worldwide (BKW) is back.

The Whopper topper posted better than expected financial results on Monday.

It may not seem all that impressive at first. Revenue slipped 26% during the company's first full quarter as a new public company. However, the top-line retreat is intentional. Burger King has been handing over company-owned locations to seasoned franchisees. During the quarter alone, Burger King refranchised 221 locations worldwide.

Naturally, revenue will be lower at the stores being transferred to franchise owners, but the incoming royalties and other related revenue should help boost the company's margins. It happened this time: Despite the sharp decline in revenue, adjusted earnings per share climbed 11% to $0.17 a share. Analysts were projecting a profit of just $0.15 a share.

Having it its way
Same-store sales rose 1.4% during the period. It may not seem like much, but keep in mind that this was the same quarter in which larger rival McDonald's (MCD) posted similar store-level production. Unlike Burger King's ability to grow its bottom line on adjusted basis, Mickey D's actually posted a decline in net income.

Perhaps more impressive is that Burger King got there without ripping off the McDonald's playbook.

Earlier this year it seemed as if BK menu changes were merely mirroring what was working at its larger burger-flipping competitor. McDonald's added snack wraps, popcorn chicken, and smoothies. Burger King played along.

However, the Home of the Whopper took some chances this time. It rolled out a Summer BBQ menu featuring barbecued chicken and pulled pork sandwiches. Recently it reintroduced its chicken parmesan sandwich with its upgraded chicken patty.

Maybe Burger King needed McDonald's to find its way back after a few lean years, but now it's ready to carve its own path.

Taking back the silver
After slipping below Wendy's (WEN) -- on a sales volume basis -- last year, Burger King is finally in a position to take back second place.

Sure, it has a net debt position of $2.6 billion. However, the 12,600-unit chain's frachisee-intensive model will make it a cash flow machine. In fact, Burger King initiated a dividend policy this week.

It won't be much at $0.04 a share every three months, but it's a start. At a time when McDonald's disappointed investors with its softest sales growth rate in nine years, Burger King is just starting to get in a groove.

BK won't catch up to McDonald's in terms of sheer size. (It has less than half as many locations worldwide as the Golden Arches.) However, if it keeps performing like this relative to expectations, it may not be long before it replaces McDonald's as the market darling of fast food stocks.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services have recommended buying shares of McDonald's.


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45 Comments

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miousnaldydivers

why!!!!!!!!!!!!!!!! Cant you mash McDonalds and burger king together and make mcburger!

February 19 2013 at 7:59 PM Report abuse rate up rate down Reply
Freddy De Joint

I spend over 25 yrs with burger king corp in varoius capacity ( ASST.MANAGER, GENERAL MANAGER, AREA MANAGER, DM, ) all while making over $100,000 per, with fringes. Not bad for a person who didn't know what to do after leaving the Marines. But what i really wanted to write was, which allways bother was the fact BK was allways trying to out do MC, and i would allways put in my 2 cents and tell corptate we will never catch up to MC as long as we try to imitate them. i guess now they figure it out, i hope
PS, I"M now the owner of a SmashBurger and growing.

November 01 2012 at 1:11 AM Report abuse rate up rate down Reply
the2431

DQ does it all.................better, Thanks DQ !

November 01 2012 at 1:05 AM Report abuse rate up rate down Reply
cjb9867

I am going to bring back the BURGER CHEF logic of fast food fresh off the broiler- NO nukin-fix it the way you want it burger bar. I do not eat at mcdonalds because they are more worried about coffee and desert sales to care about what or how they are making your order ---Burger king they nuke alot---wendy's -new ads make me worry about gaining weight Dave is turning in his grave. I think Steve Martin was right when he said they make everything in a vat in the back cheeseburger (scoop)-here you go frie (scoop)-here you go coke (scoop)-there you are and (scoop) don't foget your change

October 31 2012 at 11:56 PM Report abuse rate up rate down Reply
dmainswo

I do not get how McDonald is at all popular. I have tried several times to "like" McDonalds but it is just not working out for me. Once again, I stopped by there this week. Even though it was very crowded (weekday, noon), I decided to "quiz" the order taker so as not to leave disappointed once again. My issue - NONE of McDonalds' burgers come with tomatoes. An American burger SHOULD come with tomatoes UNLESS you say - cut the tomatoes. Finally, the order taker takes pity on my dilemma and shares with me that we can use the ADD feature and have fresh sliced tomatoes added to ANY burger. So I ordered an Angus Burger ADD tomato, no onion. So finally, I am leaving McDonalds not disappointed. And the reason I left not disappointed was that my order was "to go", so I did not discover until I was at home that an Angus burger ADD tomatoe, no onion did not come with lettuce. An American burger should come with LETTUCE and TOMATO unless one says CUT THE LETTUCE AND TOMATO. Thank you Burker King, Wendy's, Sonic, (insert favorite burger joint name here) for understanding that. Burger King should easily be beating McDonalds.

October 31 2012 at 11:48 PM Report abuse rate up rate down Reply
Chris

I was turned off of Burger King when I caught them "Microwaving" an old Whopper that they were going to sell to me. Their fries are weird also. McDonalds is okay but now they are very slow with service. I think Whataburger and Braum's beats them both.

October 31 2012 at 10:12 PM Report abuse rate up rate down Reply
prowzee68

Nations Giants Burgers up in the SF Bay Area have some of the best Burgers and fries around. I wish they would go nation wide.

October 31 2012 at 10:06 PM Report abuse rate up rate down Reply
KEN STALEY

I work construction. That makes me a fast food connoisseur. Both have fair to midlyn food. You just can,t eat the same thing every day. Mc Donalds is a fast food making machine. You see a long line at BK your in for a wait.I took the family to the Navy pier in Chicago last summer. Only Mc Donalds could have gotton us our food in 10 minutes.

October 31 2012 at 10:00 PM Report abuse rate up rate down Reply
carol lowery

I can remember when Burger King was always putting down McD's and it use to upset me, it was as bad as politics. I will stick with McD's, I like their fries better if I decide to have fries. I love their mochca coffee whether hot or cold, it beats Starbucks for consistent quality. I don't do fast food very much but if I do, it's either McD's which is nearer to me or Wendy's.

October 31 2012 at 9:51 PM Report abuse +1 rate up rate down Reply
douttfire

Burger King is NASTY. Their fries are gross...new and improved? NOT! Just cut the potatoes and drop them in grease...'nuff said. Stop making "fries" out of mashed potato flakes, please! The "grilled" smell is just that- smell. The grill is electric, so any smoke is coming from burnt grease. THIRD-Rate...falling behind Wendy's in taste and quality.

October 31 2012 at 9:30 PM Report abuse rate up rate down Reply