Market close: Restaurant Brands’ share price plunges on weaker profit outlook

Restaurant Brands' share price has been weak, despite a strong earnings update. Graphic / NZME

Pizza Hut and KFC operator Restaurant Brands plunged more than 12 per cent after dramatically lowering its profit outlook as the New Zealand sharemarket opened the week on a flat note.

Following a weak Wall Street over the weekend, the S&P/NZX 50 fell sharply at the opening and trod a rocky pathway to close at 11,934.24, down 8.96 points or 0.08 per cent. The index reached an intraday high of 11,943.2 points.

With a public holiday in New South Wales, trading on the Australian and New Zealand markets was light. There were 63 gainers and 63 decliners on the NZX with volumes of 19.4 million share transactions worth $69.79 million.

Matt Goodson, managing director of Salt Funds Management, said the local market had a slightly negative feel, given the moves on Wall Street.

“Restaurant Brands delivered a double whopper of an earnings downgrade [down by nearly 50 per cent]. The company is in a classic squeeze - they have been putting through price increases but insufficient to offset rising input costs of ingredients and wages,” Goodson said.

In the United States, the Dow Jones Industrial Average was down 0.43 per cent to 35,065.62 points; the S&P 500 declined 0.53 per cent to 4478.03; and the Nasdaq Composite decreased 0.36 per cent to 13,909.25.

Across the Tasman, the S&P/ASX 20 Index was down 0.21 per cent to 7309.9 points at 6pm New Zealand time.

Back home, Restaurant Brands fell 78 cents or 12.23 per cent to a near six-year low of $5.60 after reducing its full-year net profit guidance to $12m-$16m, down from $32.08m last year and $51.88m in 2021. The market had pencilled in profit of $31m for the year ending December.

The share price of the fast-food operator reached $5.50 on January 10 and was trading at $5.67 on May 1, 2017. It has 377 stores in New Zealand, Australia, Hawaii and California, including 10 new ones this year.

Restaurant Brands, which also operates Carl’s Jr and Taco Bell, said the inflationary pressures continued to evolve, particularly with ingredient and wage costs.

Performance was impacted by continued cost increases in New Zealand exceeding earlier expectations, and lower than expected sales growth in California and Hawaii.

“Given these factors will continue for some time, at a level far greater than anticipated, it has become apparent that recovery in the second half is also going to be weaker than expected,” the company said.

Restaurant Brands reported a 7.1 per cent increase in second quarter sales to $331.6m, and total year-to-date sales of $640.2m, up 9.4 per cent. New Zealand sales were up 7.2 per cent to $142.9m in the second quarter, Australia increasing 13 per cent to $78.2m, Hawaii flat at $65.3m, and California down 1.5 per cent to $45.2m.

Goodson said customers appeared to be moving away from the more expensive items on the menu, and this is indeed a reflection that consumers are tightening their belts, as well as an indication of the pressures on the cost of doing business.

Restaurant Brands’ competitor Burger Fuel increased 2.5c or 10 per cent to 27.5c.

Fisher and Paykel Healthcare was down 19c to $24.07; Ebos Group declined 40c to $36.98; Mainfreight shed 49c to $67.90; Meridian Energy decreased 9c to $5.49; Ryman Healthcare was also down 9c to $6.73 and so was Summerset Group to $10.12.

T&G Global shed 6c or 2.94 per cent to $1.98; Gentrack fell 14c or 3.18 per cent to $4.26; Marsden Maritime Holdings was down 16c or 3.2 per cent to $4.84; and South Port New Zealand declined 10c to $7.30.

Mercury Energy increased 10c to $6.60; Chorus gained 11c to $8.515; Fletcher Building was up 6c to $5.61; Vulcan Steel added 18c or 2.23 per cent to $8.24; and Comvita gained 9c or 2.77 per cent to $3.34.

PGG Wrightson was up 10c or 2.37 per cent to $4.32; a2 Milk increased 11c or 2.04 per cent to $5.51; NZME gained 2c or 1.98 per cent to $1.03; My Food Bag collected 1c or 5 per cent to 21c; and Move Logistics added 3c or 3.75 per cent to 83c.

Scott Technology, gaining 5c to $3.40, last week announced a $12m deal with McCain Foods, the world’s largest manufacturer of frozen potato products, to supply an automated materials handling system to the Canadian Alberta processing facility.

The system featuring two-high-speed palletisers, nine buffer tables, conveyors and pallet wrappers will handle McCain’s production capacity of 130 cases per minute.

Michael Hill was up 3c or 3.09 per cent to $1; Cannasouth increased 2c or 9.3 per cent to 23.5c; MHM Automation rose 6c or 7.14 per cent to 90c; and Marlin Global Fund added 3c or 3.13 per cent to 99c.

Enprise Group was unchanged at 60c after its wholly-owned Kilimanjaro Consulting obtained a court injunction against MYOB, which reduced the Exo platform margin, amounting to $935,000 a year.

Kilimanjaro supports the largest MYOB Exo install base of any partner in Australia and New Zealand. The Australian court ruled that Kilimanjaro can in the meantime continue to utilise the Exo margin as outlined in the 2018 Business Partner Agreement. A trial is set for April next year.