Burger King 1Q profit rises 2 percent

A boost in sales worldwide helped Burger King post a 2 percent increase in its fiscal first-quarter profit on Friday, but higher food costs and other expenses still took a bite out of its earnings.

The nation's No. 2 hamburger chain reported increases in commodity, remodeling and acquisition startup costs, leading the chain to miss Wall Street's profit estimates by a penny per share.

Higher commodity costs have been a problem for virtually all restaurant chains, with the price of beef, chicken, cheese and cooking oil all rising.

On a conference call with analysts, Chief Executive John Chidsey said the company's "commodities basket" grew 17 percent in the quarter -- a hefty rise that it partially offset by raising prices on selected items in some markets.

Chidsey said the company is testing a higher-priced Whopper Jr. sandwich in some areas to see whether consumers are willing to pay more for the smaller version of its iconic burger.

He called the higher price "simply a learning project," adding that the company is "hesitant" to permanently raise the price since the higher costs could be more of a short-term problem.

Burger King's biggest rival, industry-leader McDonald's Corp., said this week it would ask franchisees to consider charging a bit more than a dollar for the Double Cheeseburger and replacing the sandwich on the popular Dollar Menu with a less cheesy double burger.

McDonald's has for months been considering tinkering with its Dollar Menu due to high food costs. It also reported higher commodity costs in its latest quarter, but its profit was more insulated from the increases due in part to a 7.1 percent rise in global same-store sales.

Some relief from high commodity prices may be in sight, Burger King said, noting that prices for beef, cheese and oils have "significantly decreased" since the end of July.

"Those commodity costs had skyrocketed and now they've just dropped off a cliff," said Morningstar analyst John Owens.

But it's unlikely that commodity costs will stop weighing down profit. Burger King said it still expects those expenses to rise between 5 percent and 7 percent year-over-year for the full fiscal year.

For the fiscal first quarter, Miami-based Burger King Holdings Inc. said net income rose to $50 million, or 36 cents per share, from $49 million, or 35 cents per share in the year-ago quarter. Burger King earned 38 cents per share excluding charges, one penny shy of Wall Street estimates, according to Thomson Reuters.

Revenue grew 12 percent to $674 million from $602 million. Analysts predicted $667.6 million.

Same-store sales, or sales at locations open at least a year, rose 3.6 percent worldwide. Despite the economic turmoil in the U.S., same-store sales in the U.S. and Canada rose 3 percent.

Stifel Nicolaus analyst Steve West called the same-store sales increase "great news ... bolstering our belief Burger King's consumer in the U.S. is still strong even in the face of severe macroeconomic headwinds."

Burger King said the higher prices in some markets as well as its value menu items and breakfast and late-night menus helped increase sales worldwide.

Overseas, limited-time offer Whopper sandwiches also added to sales, while in the U.S., the company said new products including the Steakhouse Burger and a new Kids Meal featuring Kraft Macaroni and Cheese and Fresh Apple Fries boosted revenue.

The downturn in the economy may have also provided a helping hand to U.S. sales since consumers have increasingly been turning to fast food in an attempt to save cash. Consumers -- spooked by bank failures, declines in the stock market and talk of a prolonged recession -- have cut back on spending in recent months and have been avoiding pricier sit-down chains.

The company also reaffirmed its 2009 profit outlook for earnings per share growth of 12 percent to 15 percent, implying profit of $1.54 to $1.59 per share. Analysts see $1.56 per share.

Burger King said it expects to add 350 to 400 new restaurants in the 2009 fiscal year.

Shares rose 36 cents to $20.60 in afternoon trading