Popeyes' Owner Restaurant Brands Wins In The Chicken Wars

So, Who Won The Chicken Wars?

The Chicken Wars had all of us chicken-loving social media addicts on the edge of our seats all summer. Started with a simple post from Chic-fil-a, it blossomed into a social media frenzy that drove traffic (virtual and boots-on-the-ground) for all involved. What happened? Chic-fil-a innocently claims to be the original fried chicken sandwich and Popeye's called them out on it. The fight quickly turned to whose sandwich was better and by the end of if Popeyes had a new sandwichs and Yum! Brands (YUM) KFC was in the fight.

If you doubt the impact of this war on the chicken business let me tell you this. The chicken war is responsible for YOY increases in chicken demand that will impact pricing all year. Stores were selling out of chicken left and right putting on a drain on the entire little-chicken supply chain.

While there is no clear winner in terms of their sandwiches, I can attest they are all good in their own special ways, Popeyes and its owner Restaurant Brands International (QSR) are certainly winning when it comes to exposure, advertising, and business. The Twitter battle was genius advertising that increased the company’s social media following more than the previous two years combined.

Popeye’s Chicken Sandwich Is A Game-Changer

Chic-fil-a still holds a commanding lead when it comes to Twitter followers and Facebook likes but Popeyes won that battle hands down. Popeyes Twitter followers surged more than 60% in the first week alone versus Chic-fil-a’s mere 4%.

The 4th quarter results, released today, are proof that a solid-social media ad campaign, however it starts, can drive bottom-line results. Restaurant Brands reports a 10% system-wide increase in net sales for Q4 driven by a 42% surge in Popeyes. Revenue grew 6.5% on a YOY basis, 150 basis points higher than the consensus, as comps spike 34.4% at the chicken franchise. Comps at Burger King were also strong but a more tepid 2.8%. Tim Hortons was the only area of weakness, down -4.3%.

"Burger King delivered its strongest year of restaurant growth in the last two decades. Popeyes launched an iconic Chicken Sandwich that has proven to be a game-changer for the brand in every way. At Tim Hortons, our performance did not reflect the incredible power of our brand and it is clear that we have a large opportunity to refocus on our founding values and what has made us famous with our guests over the years, which will be the basis for our plan in 2020."

The Outlook Is Good For Restaurant Brands International

The outlook for growth is good at Restaurant Brands International. Aside from Popeyes' transformational growth Burger King is growing at a low-double-digit pace and expected to produce similar results in 2020. The consensus is revenue growth of 6% but that target is low given today’s news. If the company is able to reinvigorate Tim Hortons as it plans, RBI could see revenue growth top 10% this year.

Restaurant Brands International is a dividend payer so keep that in mind. The company just increased its distribution by 4% or $0.02 and yields 3.25%. The payout ratio is high at 72% but sustainable given RBI’s free cash and cash-flow growth.

 The Technical Outlook: A Bottom May Be Forming

Shares of Restaurant Brands International have been in a downtrend since hitting an all-time high last year. The most recent price action shows volatility is picked up as price action approached a key level of support. The support line at the $60 level is consistent with the top of a price gap formed last year and so far showing strength.

Today’s news caused price action to pop but there is a caveat. Sellers were waiting to take profits/trim losses at the $65 level and created a bearish candle. The near-term outlook is bearish, unfortunately, but within limits. The price action is still above key support and there is growth in the forecast. Cautious traders may want to use the $63.50 and $60.00 levels as entry targets for small positions if support re-confirms.