Restaurant Brands (QSR)

Fast-food company Restaurant Brands (NYSE:QSR) announced better-than-expected revenue in Q3 CY2025, with sales up 6.9% year on year to $2.45 billion. Its non-GAAP profit of $1.03 per share was 2.9% above analysts’ consensus estimates.

Company Overview

Formed through a strategic merger, Restaurant Brands International (NYSE:QSR) is a multinational corporation that owns three iconic fast-food chains: Burger King, Tim Hortons, and Popeyes.

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Restaurant Brands’ competitors include McDonald’s (NYSE:MCD), Shake Shack (NYSE:SHAK), Wendy’s (NASDAQ:WEN), and Taco Bell and KFC (owned by Yum! Brands, NYSE:YUM).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $9.26 billion in revenue over the past 12 months, Restaurant Brands is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost.

As you can see below, Restaurant Brands grew its sales at a decent 9% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new restaurants and increased sales at existing, established dining locations.

This quarter, Restaurant Brands reported year-on-year revenue growth of 6.9%, and its $2.45 billion of revenue exceeded Wall Street’s estimates by 2.4%.

Looking ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, a deceleration versus the last six years. This projection doesn't excite us and indicates its menu offerings will face some demand challenges.

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

Restaurant Brands sported 32,423 locations in the latest quarter. Over the last two years, it has opened new restaurants quickly, averaging 3.5% annual growth. This was faster than the broader restaurant sector. Additionally, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while Restaurant Brands provides support.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing restaurants and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Restaurant Brands’s demand has been healthy for a restaurant chain over the last two years. On average, the company has grown its same-store sales by a robust 2.7% per year. This performance suggests its rollout of new restaurants could be beneficial for shareholders. When a chain has demand, more locations should help it reach more customers and boost revenue growth.

In the latest quarter, Restaurant Brands’s same-store sales rose 4% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate pricing power and differentiation, whether it be the dining experience or quality and taste of food.

Restaurant Brands has great unit economics for a restaurant company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 35.2% gross margin over the last two years. That means Restaurant Brands only paid its suppliers $64.76 for every $100 in revenue.

This quarter, Restaurant Brands’s gross profit margin was 34.4%, in line with the same quarter last year. On a wider time horizon, Restaurant Brands’s full-year margin has been trending down over the past 12 months, decreasing by 3.7 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as ingredients and transportation expenses).

Operating margin is a key profitability metric because it accounts for all expenses keeping the business in motion, including food costs, wages, rent, advertising, and other administrative costs.

Restaurant Brands has been a well-oiled machine over the last two years. It demonstrated elite profitability for a restaurant business, boasting an average operating margin of 26%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Restaurant Brands’s operating margin decreased by 4.5 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Restaurant Brands generated an operating margin profit margin of 27.1%, up 1.9 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Restaurant Brands’s EPS grew at an unimpressive 4.8% compounded annual growth rate over the last six years, lower than its 9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

In Q3, Restaurant Brands reported adjusted EPS of $1.03, up from $0.93 in the same quarter last year. This print beat analysts’ estimates by 2.9%. Over the next 12 months, Wall Street expects Restaurant Brands’s full-year EPS of $3.53 to grow 11.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Restaurant Brands has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 15.4% over the last two years.

Restaurant Brands’s free cash flow clocked in at $531 million in Q3, equivalent to a 21.7% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Restaurant Brands hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 11.9%, higher than most restaurant businesses.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Restaurant Brands’s $15.64 billion of debt exceeds the $1.21 billion of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $2.89 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Restaurant Brands could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Restaurant Brands can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We enjoyed seeing Restaurant Brands beat analysts’ revenue expectations this quarter. We were also glad its same-store sales outperformed Wall Street’s estimates. This ultimately led to an EPS beat. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 4% to $68.65 immediately after reporting.

Updated: December 4, 2025 at 9:40 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Restaurant Brands is a pretty decent company if you ignore its balance sheet. First off, its revenue growth was solid over the last six years. And while Restaurant Brands’s projected EPS for the next year is lacking, its impressive operating margins show it has a highly efficient business model.

Restaurant Brands’s P/E ratio based on the next 12 months is 18.2x. All that said, we aren’t investing at the moment because its balance sheet makes us balk. Interested in this company and its prospects? We recommend you wait until it generates sufficient cash flows or raises money.

Wall Street analysts have a consensus one-year price target of $77.93 on the company (compared to the current share price of $71.93).