The Wendy’s Company (WEN – Free Report) reported better-than-expected results in the first quarter of 2018. Adjusted earnings of 11 cents surpassed the Zacks Consensus Estimate of 10 cents by 10%. The bottom line also increased 37.5% year over year, primarily favored by the positive effect of lower tax rate related to share-based payments along with Tax Cuts and Jobs Act of 2017. Increased revenues also drove earnings.

Quarterly revenues of $380.6 million topped the consensus mark of $380 million by 0.2%. The top line improved 5.4% from the year-ago quarter driven by increased rental revenues related to Franchise Flips completed in 2017. Revenues also gained from positive comps recorded from both company-operated and franchise-operated restaurants. However, comps for North American system were affected by adverse weather conditions, which partially dented the overall top line of the company.

Meanwhile, comps at the North America system restaurants were up 1.6% compared with an increase of 1.3% in the last reported quarter and 1.6% in first-quarter 2017.

The Wendy’s Company Price, Consensus and EPS Surprise

The Wendy’s Company Price, Consensus and EPS Surprise | The Wendy’s Company Quote

Despite the earnings beat, shares of Wendy’s have declined 3.5% in after-hour trading on May 8. However, the company’s shares have rallied 9% in the past year, outperforming the industry’s gain of 4.6%.

Let’s delve deeper into the numbers.

System-Wide Sales Discussion

Global system-wide sales, including both company-operated and franchise restaurants, were $2.5 million in the quarter, up 3.3% from the prior-year quarter. The North America system-wide sales were $2.4 million in the first quarter, reflecting a 2.8% year-over-year increase. Systemwide sales at the International segment amounted to $0.13 million in the quarter, up 13.7% year over year.

Operating Highlights

Company-operated restaurant margin came in at 13.9% in the quarter compared with 16% in the year-ago quarter. The 210-basis points (bps) decline was primarily caused by higher commodity and labor costs, partially offset by pricing actions.

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