Arcos Dorados Holdings' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Arcos Dorados Holdings, Inc. (ARCO)

Q2 2012 Earnings Call

August 7, 2012 10:00 AM ET

Executives

Sofia Chellew – Director, IR

Woods Staton – Chairman and CEO

Sergio Alonso – COO

Germán Lemonnier – CFO

Analysts

John Glass – Morgan Stanley

Jeronimo De Guzman – Morgan Stanley

John Ivankoe – JP Morgan

Robert Ford – Bank of America/Merrill Lynch

Mitchell Speiser – Buckingham Research

Nitin Saigal – Bridger Capital

Presentation

Operator

Good morning everyone and welcome to the Arcos Dorados Second Quarter 2012 Earnings Conference Call. With us today are Woods Staton, Chairman and Chief Executive Officer; Sergio Alonso, Chief Operating Officer, the company’s CFO, Germán Lemonnier; and Sofia Chellew, Investor Relations Director.

As a reminder, all participants will be in a listen-only mode. There will be an opportunities for you to ask questions at the end of today’s presentation. (Operator Instructions) Today’s conference is being recorded.

Sofia Chellew

Hello everybody, this is Sofia Chellew. Before we proceed, I would like to make the following Safe Harbor statement. Today’s call will contain forward-looking statement and I will refer you to the forward-looking statement section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.

In addition to reporting financial results in accordance with generally accepted accounting principles. We report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release filed with the SEC on Form 6-K.

I’d now like to turn the call over to Woods Staton, our CEO and Chairman.

Woods Staton

Thank you, Sofia and hello to everyone. I’d like to thank you all for joining us today for a second quarter 2012 review of results. After some brief comments, we will open the call to questions. During the quarter, we remain focused on McDonald thus best that is providing the highest quality customer experience, delivering the most relevant menu items and increasing accessibility to the McDonald’s brand.

Our operations continue to be strong in the second quarter driven by higher check growth and increased guests counts, successful marketing activities and continued operational efficiencies. The result is double digit comparable sales growth and solid operating profitability despite macroeconomic headwinds in some of our key markets.

To mention a few highlights comp sales growth 10.4% year-over-year. This is particularly significant as it comes on top of a double-digit increase in the year-ago period. Revenue growth excluding the impact of currencies was 15.5%. Our reported adjusted EBITDA and net income were particularly impacted by the sharp depreciation of 23% in the Brazilian currency.

Excluding the impact of currency translation, and other special items, adjusted EBITDA rose 6.3% year-over-year. You all have notice, we are now reporting organic results, which shifts out the impact of currency translation and special items alongside reported results to better reflect to health and growth of our business on the ground. We identify special items and analysis.

We hope that this new format will make it easier for you to track our underlying performance. Our leadership position and ability to adapt marketing activates to changing conditions led to increase sales in Brazil in the second quarter even as economic activity was sluggish.

We reported 0.75% year-over-year growth in the first half, when is well is Argentina also continued to be important contributors to consolidate results and we’re monitoring those two markets carefully. We’re pleased with the progress that we are making in our turnaround plan for Mexico and expect to continue to benefit better macroeconomic scenario in that country as we go forward. Operations are attributing also improved, stronger performance from Puerto Rico, fueled by innovative marketing initiatives that are driving revenue growth.

Our result is double-digit organic revenue growth for the company which is on target with our stated expectations. And while various macroeconomic and geopolitical issues persist in the region, the underlying strength of our enterprise is indisputable and we’ll serve the driver of ongoing future revenue growth. We continue to expect to achieve our full year revenue growth target. However given the slower than expected pickup in economic activity in our largest market Brazil and the impact on dollar costs and currency weakness we now anticipate achieving an adjusted EBITDA growth rate for the year 2012 of between 8% and 10% on a constant currency basis.

Turning to slide three, we will all be familiar with McDonald successful growth roadmap, the plan to win.

As McDonald’s largest franchisee Arcos Dorados forms an important part of this plan. To compliment this strategy and to take a count of Arcos Dorados unique operating environment we have created our own gross blueprints the Receta Para Ganar or recipe to win.

For our team members there as little will coming to surprise in this strategy. Every Arcos Dorados colleague is where the emphasis we placed on customer’s satisfaction in sales growth. Our first vector as one of our focus on margin management, the third vector, as such, all these planned us additionalize something.

While we are still refining specific targets for the plan, we have chosen to communicate (inaudible) stakeholders because much like the plan to win, it will governed on our approach to growth over the next five-years.

Also I want to be clear about our areas of focus and how we plan to improve our business. The first vector, comparable sales growth, is the key pillar of Receta Para Ganar and it’s always been at the forefront of our efforts to expand the business. We have a number of initiatives in place to grow sales including brand extensions like McCafe and Dessert Centers. Most recently we launched a combined beverage business in the Caribbean, which is proving to be highly successful.

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