While the industry's top dog struggles to keep earnings figures up, perennial fast-food underdog Burger King Worldwide continues its fantastic run after last year's IPO (the most recent of a few for the company). Though sales didn't impress, earnings certainly did as the company was able to control costs effectively via an ongoing (and recently completed) effort to refranchise its stores. Franchising is a wonderful business: capital light and cash rich. Reformed and under new management, Burger King is committed to franchising its existing stores and opening up new ones. In the meantime, the company continues to innovate the menu and generate new consumer interest in the third-place burger flipper. Its early pop on the markets behind it, is there still time to give Burger King another try?

Earnings recap
It wasn't all bright news for the King, as the third quarter showed a sharp drop off in top-line sales -- down 40% to just $275 million (though it was not an organic fall). Out of that $275 million, though, the company booked $68 million in profit, up from a measly $6.6 million in the year-ago quarter. Sales, as mentioned, didn't provide the boost. But a big drop in company-owned store expenses along with improving same-store sales in its international stores kept the numbers favorable with analysts and investors.

Excluding the impact of the store refranchising (going from company-owned to franchised), revenues rose 8%. To further cement the point, company-owned store revenue dropped 89%. At the same time, Burger King's total expenses dropped 64%.


The refranchising has been the story since before Burger King went public (the latest time). Activist investor Bill Ackman was a prominent figure in the reemergence of the company, taking a sizable stake and pushing for the franchised stores and faster global expansion. Still, even though the company has already spent over a year back on the markets and working toward its new strategy, investors may have time to ride the gains.

Room for more
With a trailing price-to-earnings ratio of nearly 50 times and a stock price at its 52-week high, investors may be tempted to say "No more" to the King, but that might be a mistake.

Margins will continue to improve, especially on the gross level, as the company shifts completely to a franchise model. At the same time, the company's global footprint, already a substantial brand overseas, is set to grow into new markets. Same-store sales in the EMEA region grew 2.4%, while Latin American operations swung positive to a 2.1% gain. In the last six months, same-store sales in the region had been tracking down. The Asia-Pacific region grew nearly 4%.

For income investors, the stock may be appealing as well. Management recently announced a bump from $0.01 per share to $0.07 per share. As the franchise model is now in full effect, the company will free up more cash and investors may likely see more dividend increases headed their way.

Overall, Burger King is a compelling choice in the quick-service restaurant segment. Though seemingly pricey on certain valuations, the stock is set to grow on both the top and bottom lines via store growth and cost cuts. Investors would be wise to keep a close eye on this one.

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The article Burger King May Be the Fast Food to Beat originally appeared on Fool.com.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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