KFC leaves little room for error at Restaurant Brands

Friday 17th September 2004

Restaurant Brands' investors who think their dividend payout is looking shaky have reason to be worried.

The company pays out 10 cents a share or approximately $9.6 million a year to its shareholders. That is $1.5 million more than its net profit last year.

This week the company reported another quarter of weak sales down 0.5% on the previous corresponding period. Its core KFC division was again the culprit, experiencing negative same-store sales growth for the eighth consecutive quarter.

Analysts say evidence of even moderate growth for the core KFC brand is scarce and, in any case, any sign of improvement would take some time to convince the market that growth could be sustained.

Restaurant Brands' chief executive Vicki Salmon, now an expert at looking on the bright side, picked an improvement in KFC and overall margins.

"Last year was an ugly year and an aberration and we are going back to the profits of previous years," she said.

Maybe so, but Forsyth Barr has already pulled back its forecasts and dropped its price valuation. The broker has also lowered its margin expectations, citing the cost pressures facing local companies at present.

Forsyth Barr has pegged back its net profit forecast for the 2005 full year to $9.2 million. This compares with the company's posted $8.1 million for 2004 and $11.1 million for 2003.

Restaurant Brands shares gained slightly following the second quarter announcement highlighting the faith investors appear to keep in the company.

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