Arcos Dorados (ARCO) Misses Q2 EPS by 7c, Revenues Beat

Arcos Dorados (NYSE: ARCO) reported Q2 EPS of ($0.44), $0.07 worse than the analyst estimate of ($0.37). Revenue for the quarter came in at $292.5 million versus the consensus estimate of $248.33 million.

“The resilience of the Arcos Dorados System was on full display during the second quarter of 2020. Working closely with our partners, we quickly adapted to the abrupt interruption to our business across the region. We gradually re-opened Latin America and the Caribbean’s largest quick service restaurant (“QSR”) portfolio, including the highest number of Free-standing locations, and leveraged the Three D’s of Drive-thru, Delivery and Digital to generate a significant recovery in sales and profitability trends.

Both the Drive-thru and Delivery segments experienced impressive growth and, together generated 80% of second quarter sales. Our Digital Platform, which includes our Delivery segment, industry-leading Mobile App, self-ordering kiosks in our 710 Experience of the Future restaurants, growing CRM capabilities and increasingly sophisticated digital marketing tools, generated 40% of second quarter sales.

The rapid improvement in topline translated into a strong rebound in profitability as well. Our proactive cost and expense reduction initiatives combined with important improvements in operational efficiency generated nearly breakeven EBITDA at the divisional level in June. In fact, eight of our markets generated positive EBITDA in the last month of the quarter, including Brazil and several of our ‘hard currency’ markets, especially in NOLAD and the Caribbean. The recovery continued in July, with consolidated EBITDA already in positive territory.

Our supply chain operated without interruptions thanks to the hard work of our team and our supportive supplier network, which has kept cost increases well under control. We have also successfully converted a significant portion of our fixed costs into variable costs. These measures, combined with other cash management actions, allowed us to stabilize our cash flows by the end of April, thus limiting the amount of short-term borrowing we will need to navigate the crisis.

Consumers across Latin America and the Caribbean remain concerned with the health risks associated with the COVID-19 virus, and we addressed their worries with our McProtegidos, or McSafe, Program. Every one of our more than 2,200 restaurants in the region features signage designed to communicate safety, employees outfitted with appropriate personal protective equipment as well as acrylic barriers and other social distancing mechanisms to ensure all who enter feel safe. Not surprisingly, weekly consumer surveys in all our main markets show McDonald’s is by far the most trusted brand in the QSR industry.

We are confident that we have the best brand, restaurant portfolio, employees and System to emerge in an even stronger competitive position than we entered the crisis. Our focus will remain on investing in our existing restaurants and expanding our digital capabilities to accelerate the future growth of our business,” said Marcelo Rabach, Chief Executive Officer of Arcos Dorados.

For earnings history and earnings-related data on Arcos Dorados (ARCO) click here.

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