Burger King Second-Quarter Profit Rises on Promotion

Burger King Holdings Inc., the second-largest U.S. hamburger chain, said second-quarter profit rose 41 percent as an Xbox video-game promotion helped boost sales of Whopper Jr. sandwiches.

Net income climbed to $38 million, or 28 cents a share, from $27 million, or 24 cents, a year earlier, Miami-based Burger King said today in a statement. Revenue in the three months ended Dec. 31 rose 9.2 percent to $559 million.

Burger King said the results will allow it to pay a dividend this quarter, the first since it sold shares to the public in May. In the second quarter, $3.99 video games for Microsoft Corp.'s Xbox system drew customers and increased sales of value- menu items, such as the Whopper Jr. and Chicken Tenders.

``The Burger King turnaround seems to be gaining some traction here,'' said John Owens, an analyst at Chicago-based Morningstar Inc. who rates the shares ``hold.'' ``These were really good results.''

In the second quarter, sales at U.S. and Canadian stores open at least 13 months rose 4.4 percent. Worldwide same-store sales climbed 3.7 percent. The total number of restaurants increased by 43 in the quarter.

The burger chain said that it will introduce a breakfast value menu with 10 items -- including Cheesy Tots and French Toast Sticks -- starting at $1 each next month. It's the first national breakfast value menu in the industry, the company said.

Shares of Burger King, which rose as much as 4 percent early in the day, pared those gains after Chief Executive Officer John Chidsey said on a conference call that private-equity investors may sell their shares during the next two quarters.

Taking Profits

Chidsey said he wouldn't be ``surprised'' if that happened because the leveraged-buyout firms that bought the company in December 2002 may want to take profits on their investment.

The second-quarter profit exceeded the 26-cents-a-share estimate of four analysts surveyed by Bloomberg. Sales were projected at $551.2 million. The year-earlier profit was reduced by $5 million by what the company said were one-time charges.

The shares rose 10 cents to $20.85 at 4:03 p.m. in New York Stock Exchange composite trading. They sold for $17 at their initial public offering in May.

The restaurant lured video gamers in the second quarter with three different Xbox titles for $3.99 with a value-meal purchase. The action games featured Burger King characters including ``the King,'' a man wearing a crown and dressed in Renaissance-period clothing. The company sold 3.2 million of the games.

``The Xbox promotion was a huge hit,'' Owens said.

Outlook

Burger King reiterated its forecast for 2007. Sales will rise 6 percent to 7 percent and profit, excluding certain items, will increase 20 percent, the company said. Burger King said it plans to pay down debt during the second half of the year, without giving details.

Burger King will pay a 6.25-cents-a-share dividend on March 15 to shareholders of record Feb. 15.

``We have elected to pay our first cash dividend as a public company because we have consistently generated strong cash flow, and we expect our cash flow to continue to strengthen,'' Chief Financial Officer Ben Wells said in the statement.

The restaurant company raised $425 million in its IPO, becoming a standalone public company for the first time in its history. The chain was purchased by Texas Pacific Group, Bain Capital LLC and Goldman Sachs Capital Partners in December 2002 from Diageo Plc for $1.5 billion.

Chief Chidsey took over in April for Greg Brenneman, who became the second CEO in four years to leave. The company ranks ahead of Wendy's International Inc. in sales and locations, and trails McDonalds in both categories.

Market Share

McDonald's market share in 2005 -- the latest year for which data is available -- was 49.9 percent, compared with 15.6 percent for Burger King and 15.1 percent for Wendy's, according to Malcolm Knapp, a New York-based restaurant consultant.

At McDonald's, fourth-quarter worldwide same-store sales gained 6.3 percent, with U.S. sales climbing 5.9 percent. That compared with 3.7 percent and 4.4 percent gains for Burger King.

Burger King is ``still trailing McDonald's by some margin,'' Morningstar's Owens said today.

Burger King paid down $25 million in debt last week after retiring $15 million in November. Since its IPO in May, the company has paid off more than $400 million to creditors.

Burger King said it plans to add a net 250 restaurants in the year ending June 2007. That includes 450 new sites, with 250 in Europe, Middle East and Asia, 80 in Latin America and 100 in the U.S. and Canada. The chain will close 200 restaurants.

Earlier this month, the company announced plans to re-enter the Indonesian market after a 13-year absence. Last month, the company discussed opening its first restaurant in Japan.

Of seven analysts tracked by Bloomberg in the last 12 months, three rate Burger King shares ``buy'' and four say ``hold.''
source:www.bloomberg.com