Net profit margins
Net income is used to calculate earnings per share (net income over weighted average shares outstanding). It improves based on an improved cost metric. Let’s see how Burger King’s (BKW) net income has done over the year.
Adjusted EBITDA grew 13% compared to last year. Burger King’s (BKW) reported net income of $75 million increased 19% from $63 million in the second quarter a year ago. Besides the improvement in net margins, Burger King’s effective tax rate was 26% in the “second quarter.
Recap of the Tim Hortons merger
We recently covered Burger King’s move to acquire Tim Hortons (THI), which is a big coffee and donut chain in Canada. In that series, we mentioned that the deal was structured as a so-called tax-inversion deal and that Burger King will be incorporated under a new company in Canada and thus liable for Canadian corporate taxes. Click here to learn more.
Companies like McDonalds (MCD) and Yum! Brands (YUM) are included in exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY). They’ve been facing cost pressures due to increased commodity prices and employee strikes for wage increases.
With this Tim Hortons acquisition, Burger King would save on taxes due to lower corporate tax rates in Canada, according to the Wall Street Journal. But Daniel Schwartz, the CEO of Burger King, has denied that taxes are the driver of this deal, according to QSR Magazine.
In the next part of this series, we’ll discuss the potential benefits from this deal for Burger King.