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Wendy's: Katrina, Rita Will Hurt Profits

By Reuters
Published | Updated

NEW YORK – Hamburger chain operator Wendy's International Inc. (WEN) Wednesday said record high beef costs would hurt third-quarter earnings but were likely to ease in the fourth quarter.

The outlook cheered investors, and Wendy's shares rose 2 percent.

"We do expect beef prices to ease in the fourth quarter as a result of the importing of Canadian beef, which will lower prices," said Dean Haskell, an analyst at JMP Securities. "The (Wendy's) management's renewed focus on burgers will propel the company into some positive comparisons later this year."

Wendy's said beef prices would be down 10 percent in the fourth quarter, to $1.39 per pound from a high of $1.55 in the third quarter.

The company, the nation's No. 3 hamburger chain behind McDonald's Corp. (MCD) and privately held Burger King, said same-store sales at its namesake U.S. restaurants fell 5 percent in the third quarter compared with a year earlier, hurt by higher gasoline prices, lower consumer spending, and restaurant closings due to Hurricanes Katrina (search) and Rita.

It said it expects third-quarter earnings were cut by 2 cents a share by the hurricanes and by another 2 cents a share by high beef costs.

In July, Wendy's said it would spin off its fast-growing Tim Hortons (search) coffee shop chain to focus on the battle of its namesake restaurants with rivals such as McDonald's.

While same-store sales at the Tim Hortons chain rose more than 3 percent in both Canada -- its predominant market -- and the United States in the third quarter, same-store sales at its Baja Fresh Mexican Grill (search) restaurants fell 4.1 percent.

"We are not pleased with our Wendy's and Baja Fresh sales trends," Jack Schuessler, Wendy's chief executive, said in a statement.

Wendy's shares were up 94 cents to $47.66 on the New York Stock Exchange. In the last three months the shares have fallen more than 8.5 percent, compared with a rise of more than 6 percent for McDonald's shares.

Still, Wendy's traded at about 21 times estimates 2005 earning, compared with more than 16 times for McDonald's.