Trian Fund and Wendy’s
Trian Fund Management, L.P. added to its positions in the Bank of New York Mellon Corporation (BK), Mondelez International Inc (MDLZ), PepsiCo, Inc. (PEP), and Tiffany & Co. (TIF). During the second quarter of 2014, the fund decreased its positions in Allegion plc (ALLE) and Ingersoll-Rand plc (IR), and sold its position in GNC Holdings, Inc.(GNC).
A 13D filing in September reveals that Trian Fund added to its position in Wendy’s Company (WEN).
Trian Fund added to its position in Wendy’s Company. A 13D filing in September notes that the fund owns 89,515,650 shares. This is up from 6,480,0245 shares reported in the 2Q14 portfolio. The filing says the fund owns an activist stake of 24.39% in Wendy’s Company.
About The Wendy’s Company
The Wendy’s Company is the world’s third-largest quick-service hamburger company. Wendy’s system includes more than 6,500 franchise and company-operated restaurants in the United States, in 29 countries, and in U.S. territories worldwide. As of the second quarter ended June 29, Wendy’s had a total of 6,545 restaurants system-wide. Of these, 5,540 restaurants were franchised and 1,005 restaurants were company-operated.
Revenue dips in 2Q due to sale of company-operated restaurants
Consolidated revenues were $523.4 million in the second quarter of 2014, compared to $650.5 million in the second quarter of 2013. The 19.5% decrease came from loss of revenue resulting from the sale of 418 company-operated restaurants to franchisees. The sales were part of the company’s system optimization initiative. And the loss was partly offset by same-restaurant sales growth and increases in both rental income and franchise royalties.
Wendy’s company-operated restaurants generated a same-restaurant sales increase of 3.9% in 2Q 2014. Franchise same-restaurant sales in North America increased 3.1% during the quarter. The difference between company-operated and franchise same-restaurant sales came from a higher number of company-operated Image Activation restaurants being operated during the quarter. The Image Activation program is a store remodelling initiative that the company undertook two years ago.
The company-operated restaurant margin was 17.8% in the second quarter of 2014, compared to 16.7% in the second quarter of 2013. This improvement was a result of higher same-restaurant sales, and the positive impact of the company’s system optimization initiative. Partly offsetting these benefits was an increase in commodity costs—primarily higher beef prices.
Reported earnings per share were $0.08 in the second quarter of 2014, compared to earnings per share of $0.03 in the second quarter of 2013.
Company accelerates Canadian growth strategy
Wendy’s plans to further optimize its restaurant portfolio in Canada through more focused geographic concentration. It plans to sell 135 company-operated restaurants in Canada to new and existing franchise operators. These transactions will be completed by the end of the first quarter of 2015. Wendy’s also plans to retain its ownership of TimWen Partnership, its Canadian restaurant real estate 50% joint venture with Tim Hortons Inc.
Management said that selling 100% of the company’s operations in Canada to franchisees will create a strong platform for future growth:
“We believe this strategy will accelerate our commitment to growth in Canada and complement our goal of returning our U.S. restaurant system to positive net development. With each transaction, we intend to generate new commitments for our Image Activation program and development of new franchised restaurants in Canada. We also plan to reinvest the sale proceeds in the growth of franchised restaurants in Canada, using such strategies as turnkey development programs.”
Outlook for 2014
Wendy’s management lowered its outlook for full-year same-store sales growth to less than the low end of 2.5% to 3.5%. The company will continue with its system optimization strategy, selling its company-operated restaurants to franchisees. So far, the company has sold 418 company-operated restaurants to franchisees in the U.S. and will sell 135 more in Canada by the end of the first quarter in 2015. With this initiative, Wendy’s plans to lower the total system company ownership from 15% to 13%.
To learn more, read Market Realist’s article, Wendy’s quarterly earnings overview.
The next part of this series reviews Trian Fund’s reduced positions.