Core Viewpoint - Arcos Dorados Holdings Inc. (ARCO) is expected to report first-quarter 2025 results on May 14, 2025, with earnings anticipated to be below the previous year's performance due to various macroeconomic challenges and increased operational costs [1][3][5]. Group 1: Earnings Estimates - The Zacks Consensus Estimate for ARCO's earnings is set at 13 cents per share, reflecting a 7.1% decline year over year [2]. - Revenue estimates for the quarter are pegged at $1.07 billion, indicating a 1.3% decrease compared to the previous year [2]. Group 2: Factors Impacting Performance - The expected softness in comparable sales growth is attributed to macroeconomic headwinds and shifts in consumer sentiment, particularly affecting consumer-facing businesses in Latin America [3]. - A tougher year-over-year benchmark due to a leap year and weaker currency levels in core markets are anticipated to negatively impact performance [4]. - High operational costs, driven by investments in digital and IT infrastructure, are likely to have further pressured the bottom line [5]. Group 3: Earnings Prediction Model - The current model does not predict an earnings beat for ARCO, as it has an Earnings ESP of 0.00% and a Zacks Rank of 3 (Hold) [6][7].

PART I [Key Information](index=11&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data, discusses currency risks in key markets, and outlines principal business risk factors [Selected Financial Data](index=11&type=section&id=A.%20Selected%20Financial%20Data) This subsection provides selected financial data, operational metrics, and details on currency exchange rate movements Selected Income Statement Data (2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total revenues** | $4,470,162 | $4,331,878 | $3,618,902 | | **Operating income** | $324,515 | $314,039 | $264,422 | | **Net income attributable to Arcos Dorados Holdings Inc.** | $148,759 | $181,274 | $140,343 | | **Basic net income per common share** | $0.71 | $0.86 | $0.67 | | **Diluted net income per common share** | $0.71 | $0.86 | $0.67 | Selected Balance Sheet Data (As of Dec 31, 2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total assets** | $2,892,654 | $3,019,238 | $2,636,630 | | **Total liabilities** | $2,383,225 | $2,502,399 | $2,312,203 | | **Total equity** | $509,429 | $516,839 | $324,427 | Adjusted EBITDA (2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total Adjusted EBITDA** | $500,100 | $472,304 | $386,564 | Systemwide Restaurant Count (As of Dec 31, 2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | **Brazil** | 1,173 | 1,130 | 1,084 | | **NOLAD** | 654 | 647 | 638 | | **SLAD** | 601 | 584 | 590 | | **Total** | **2,428** | **2,361** | **2,312** | - The Argentine peso experienced **significant depreciation** against the U.S. dollar, with rates of **72.4% in 2022**, **357.4% in 2023**, and **27.5% in 2024**, while currency controls limit capital flows[60](index=60&type=chunk)[61](index=61&type=chunk) [Risk Factors](index=21&type=section&id=D.%20Risk%20Factors) This subsection details various risks affecting the company's business, financial condition, and operations - The company's rights to operate are entirely dependent on the **Master Franchise Agreements (MFAs) with McDonald's**, which expire in 2044[97](index=97&type=chunk) - McDonald's has the right to acquire the company's non-public shares at **80% of fair market value** in the event of a material breach of the MFAs[107](index=107&type=chunk)[109](index=109&type=chunk) - Digital channels accounted for **57.0% of systemwide sales in 2024**, representing **$3.3 billion**, making growth dependent on these initiatives[115](index=115&type=chunk)[294](index=294&type=chunk) - **Inflation and exchange rate fluctuations** in Latin America pose significant risks to costs, consumer spending, and reported results[147](index=147&type=chunk)[150](index=150&type=chunk) - The company faces **intense competition** from international and local QSR chains like Burger King, KFC, and Subway[178](index=178&type=chunk) - The Executive Chairman, Mr. Woods Staton, controls **75.38% of the company's voting interests**, enabling control over shareholder votes[217](index=217&type=chunk) [Information on the Company](index=45&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides an overview of the company's history, business model, operational structure, and property portfolio [History and Development of the Company](index=45&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) This subsection outlines the company's corporate history, key acquisitions, and capital expenditure plans - The company commenced operations on August 3, 2007, after **acquiring McDonald's Latin American business**[232](index=232&type=chunk) - In March 2011, the company completed a **split-off of its logistics and distribution operations**, Axionlog, to its existing shareholders[234](index=234&type=chunk) - The company plans to open **90-100 new restaurants in 2025**, with expected capital expenditures between **$300 million and $350 million**[236](index=236&type=chunk) Recent Restaurant Openings and Reimaging | Year | Restaurants Opened | Restaurants Reimagined | Dessert Centers Opened | | :--- | :--- | :--- | :--- | | 2024 | 85 | 160 | 164 | | 2023 | 81 | 241 | 117 | | 2022 | 66 | 114 | 107 | [Business Overview](index=46&type=section&id=B.%20Business%20Overview) This subsection details the company's market position, operational divisions, growth drivers, and ESG initiatives - Arcos Dorados is the **world's largest independent McDonald's franchisee**, with 2,428 restaurants representing 4.4% of McDonald's global sales in 2024[238](index=238&type=chunk) Restaurant Portfolio by Division (as of Dec 31, 2024) | Division | Company-Operated | Franchised | Total | % of Total | | :--- | :--- | :--- | :--- | :--- | | Brazil | 723 | 450 | 1,173 | 48.3% | | NOLAD | 497 | 157 | 654 | 26.9% | | SLAD | 505 | 96 | 601 | 24.8% | | **Total** | **1,725** | **703** | **2,428** | **100.0%** | - Digital channels comprised **57.0% of systemwide sales in 2024**, totaling **$3.3 billion**, with the mobile app exceeding 147 million downloads[294](index=294&type=chunk) - As of year-end 2024, there were **377 McCafé locations and 3,268 Dessert Centers**, which are significant transaction generators[263](index=263&type=chunk)[270](index=270&type=chunk) - The company is committed to ESG initiatives through its **'Recipe for the Future' platform**, focusing on key sustainability pillars[349](index=349&type=chunk)[356](index=356&type=chunk)[365](index=365&type=chunk)[376](index=376&type=chunk)[386](index=386&type=chunk) - By the end of 2024, **99% of primary fiber-based guest packaging** was sourced from certified or recycled sources[373](index=373&type=chunk) [Organizational Structure](index=70&type=section&id=C.%20Organizational%20Structure) This subsection describes the company's corporate structure and controlling shareholder arrangement - The company conducts substantially all business through its **wholly-owned Dutch subsidiary, Arcos Dorados B.V.**[401](index=401&type=chunk) - The controlling shareholder, Los Laureles Ltd., is beneficially owned by Executive Chairman Mr. Woods Staton and holds **75.38% of the voting interest**[401](index=401&type=chunk)[699](index=699&type=chunk) [Property, Plants and Equipment](index=71&type=section&id=D.%20Property,%20Plants%20and%20Equipment) This subsection details the company's real estate portfolio of owned and leased properties - As of December 31, 2024, the company **owned the land for 472 of its 2,428 restaurants**[406](index=406&type=chunk) - The company owns a total of **528 properties**, including restaurants, corporate offices, and training centers[408](index=408&type=chunk) [Operating and Financial Review and Prospects](index=71&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides management's discussion and analysis of financial results, liquidity, and business trends [Operating Results](index=71&type=section&id=A.%20Operating%20Results) This subsection presents a detailed analysis of operating results by geographic division for 2024 versus 2023 Consolidated Results of Operations (2024 vs. 2023) | | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Total revenues** | $4,470,162 | $4,331,878 | 3.2% | | **Operating income** | $324,515 | $314,039 | 3.3% | | **Net income attributable to Arcos Dorados** | $148,759 | $181,274 | (17.9)% | - In 2024, total revenues increased by **3.2% to $4.47 billion**, driven by **32.8% systemwide comparable sales growth**, offset by currency depreciation[460](index=460&type=chunk)[464](index=464&type=chunk)[468](index=468&type=chunk) - **Food and paper costs as a percentage of sales decreased to 35.1%** in 2024 due to pricing and waste management efficiencies[476](index=476&type=chunk) - **Payroll costs as a percentage of sales decreased to 18.7%** in 2024, driven by a social security recovery in Brazil and crew efficiencies[480](index=480&type=chunk) - **Net income for 2024 decreased by 17.9% to $148.8 million**, primarily due to negative foreign currency exchange results and higher income tax[506](index=506&type=chunk)[508](index=508&type=chunk)[511](index=511&type=chunk) Systemwide Comparable Sales Growth (2023-2024) | Division | 2024 | 2023 | | :--- | :--- | :--- | | Brazil | 7.9% | 9.9% | | NOLAD | 6.5% | 10.6% | | SLAD | 91.6% | 90.9% | | **Total** | **32.8%** | **34.6%** | [Liquidity and Capital Resources](index=94&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) This subsection details the company's financial strategy, cash position, debt profile, and contractual obligations - As of December 31, 2024, the company had a cash and short-term investments position of **$138.6 million** and **$75 million in committed credit lines**[565](index=565&type=chunk)[566](index=566&type=chunk) Consolidated Cash Flows (2022-2024) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | **Net cash provided by operating activities** | $266,847 | $381,965 | $345,437 | | **Net cash used in investing activities** | ($280,331) | ($380,349) | ($259,649) | | **Net cash used in financing activities** | ($37,162) | ($11,823) | ($59,978) | - In January 2025, the company issued **$600 million in notes due 2032** and redeemed its 2027 notes, extending its debt maturity profile[568](index=568&type=chunk)[608](index=608&type=chunk)[625](index=625&type=chunk) - The company's **$350 million 2029 notes are sustainability-linked**, with interest rates tied to greenhouse gas emission reduction targets[611](index=611&type=chunk)[614](index=614&type=chunk) Contractual Obligations as of Dec 31, 2024 | Obligation Type | Total | Due in 2025 | Due in 2026-2027 | Due Thereafter | | :--- | :--- | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | | | **Operating lease obligations** | $1,874,969 | $149,581 | $280,446 | $1,444,942 | | **2027 and 2029 notes** | $861,283 | $42,750 | $453,628 | $364,905 | | **Contractual purchase obligations** | $222,148 | $122,915 | $59,831 | $39,402 | | **Total (selected)** | **$2,958,400** | **$315,246** | **$793,905** | **$1,849,249** | [Trend Information](index=104&type=section&id=D.%20Trend%20Information) This subsection identifies key positive, challenging, and emerging trends affecting the company's business - Key positive trends include **social upward mobility in Latin America**, demand for healthier products, and the popularity of value menus[635](index=635&type=chunk) - Significant challenges include **increased competition, persistent inflation, foreign exchange volatility**, and social unrest in key markets[635](index=635&type=chunk) - Emerging trends shaping the business are a growing consumer focus on **sustainability and diversity**, and the adoption of **Artificial Intelligence**[635](index=635&type=chunk)[638](index=638&type=chunk) [Directors, Senior Management and Employees](index=105&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership, compensation structure, and workforce composition [Directors and Senior Management](index=105&type=section&id=A.%20Directors%20and%20Senior%20Management) This subsection introduces the Board of Directors and senior management team, highlighting their experience - The Board of Directors consists of **eleven members, seven of whom are independent**, serving staggered three-year terms[636](index=636&type=chunk)[637](index=637&type=chunk) - The leadership team is led by founder and Executive Chairman **Woods Staton** and CEO **Marcelo Rabach**, both with long careers in the McDonald's system[642](index=642&type=chunk)[643](index=643&type=chunk) [Compensation](index=112&type=section&id=B.%20Compensation) This subsection details the compensation structure and long-term incentive plans for directors and officers - In 2024, the aggregate annual total cash compensation was **$13.4 million for executive officers** and **$1.1 million for directors**[680](index=680&type=chunk) - The company uses a **Phantom RSU Plan** for long-term incentives, which provides cash payments based on share price upon vesting[676](index=676&type=chunk)[680](index=680&type=chunk) Phantom RSU Compensation Expense (2022-2024) | Year | Compensation Expense (in millions) | | :--- | :--- | | 2024 | $1.0 | | 2023 | $15.6 | | 2022 | $7.4 | [Employees](index=114&type=section&id=D.%20Employees) This subsection provides an overview of the company's workforce distribution and composition Employee Distribution by Division (as of Dec 31, 2024) | Division | Crew | Restaurant Managers | Professional Staff | Total | | :--- | :--- | :--- | :--- | :--- | | Brazil | 32,942 | 6,923 | 992 | 40,857 | | NOLAD | 17,394 | 3,165 | 674 | 21,233 | | SLAD | 31,084 | 4,027 | 963 | 36,074 | | Corporate and other | 0 | 0 | 451 | 451 | | **Total** | **81,420** | **14,115** | **3,080** | **98,615** | - Approximately **41% of the company's total employees are located in Brazil**, with the workforce composed of **83% crew**[685](index=685&type=chunk) [Share Ownership](index=116&type=section&id=E.%20Share%20Ownership) This subsection details the beneficial ownership of the company's shares by directors and senior management - Executive Chairman Woods Staton, through Los Laureles Ltd., beneficially owns 100% of the Class B shares, granting him **75.38% of the total voting power**[695](index=695&type=chunk)[696](index=696&type=chunk) [Major Shareholders and Related Party Transactions](index=117&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's ownership structure and significant transactions with related parties [Major Shareholders](index=117&type=section&id=A.%20Major%20Shareholders) This subsection provides a breakdown of the company's major institutional and controlling shareholders Major Shareholders' Ownership | Shareholder | % of Outstanding Class A Shares | % of Outstanding Class B Shares | Total Economic Interest | Total Voting Interest | | :--- | :--- | :--- | :--- | :--- | | Los Laureles Ltd. (Woods Staton) | — | 100.0% | 37.98% | 75.38% | | TIAA Board of Overseers | 10.50% | — | 6.52% | 2.59% | | T. Rowe Price Associates, Inc. | 10.46% | — | 6.49% | 2.58% | [Related Party Transactions](index=118&type=section&id=B.%20Related%20Party%20Transactions) This subsection describes the company's transactions with related parties, primarily its logistics provider Axionlog - In 2011, the company split off its logistics business, **Axionlog**, which is now controlled by the company's controlling shareholder, Mr. Woods Staton[705](index=705&type=chunk) - In 2024, Arcos Dorados incurred **$67.3 million in distribution fees** payable to Axionlog, representing 4.5% of total food and paper costs[708](index=708&type=chunk) - The company is a minority stakeholder in a **joint venture with a Mexican sub-franchisee** formed in November 2021[711](index=711&type=chunk) [Financial Information](index=119&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section addresses key financial disclosures, including legal proceedings, contingency provisions, and dividend policy [Consolidated Statements and Other Financial Information](index=119&type=section&id=A.%20Consolidated%20Statements%20and%20Other%20Financial%20Information) This subsection covers significant legal proceedings and the company's dividend policy and declarations - The company is facing a lawsuit from a coalition of **labor unions in Brazil** alleging inadequate working conditions, with appeals pending[715](index=715&type=chunk)[717](index=717&type=chunk) - An administrative investigation by the **Labor Prosecutor's Office in Brazil** regarding harassment allegations was archived in January 2025[721](index=721&type=chunk)[722](index=722&type=chunk) - As of December 31, 2024, the company had a **provision for contingencies of $36.7 million** for various legal proceedings[725](index=725&type=chunk) - The Board of Directors declared a cash dividend of **$0.24 per share for 2024** and approved the same amount for 2025[732](index=732&type=chunk) [Additional Information](index=123&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides supplementary corporate information on governing documents, material contracts, and taxation [Memorandum and Articles of Association](index=123&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Association) This subsection details the company's governing documents, share structure, and key differences in corporate law - The company is authorized to issue 420,000,000 Class A shares (**one vote per share**) and 80,000,000 Class B shares (**five votes per share**)[742](index=742&type=chunk) - **Class B shares are convertible into Class A shares** and will automatically convert if aggregate ownership falls below 20%[746](index=746&type=chunk) - Unlike Delaware law, **British Virgin Islands law** allows for the removal of directors with or without cause by shareholder resolution[760](index=760&type=chunk)[766](index=766&type=chunk) [Material Contracts](index=132&type=section&id=C.%20Material%20Contracts) This subsection summarizes the company's material contracts, focusing on the Master Franchise Agreements with McDonald's - The **Master Franchise Agreements (MFAs) grant exclusive rights through 2044**, with a new 20-year term starting January 1, 2025[791](index=791&type=chunk)[793](index=793&type=chunk) - **Royalty fees payable to McDonald's are set at 6.0% of gross sales** for the first ten years of the new MFA, escalating thereafter[799](index=799&type=chunk) - The company is required to spend at least **5% of its gross sales on advertising** and has committed to opening 90-100 new restaurants in 2025[813](index=813&type=chunk)[814](index=814&type=chunk) - McDonald's holds a **call option to acquire non-public shares at 80% of fair market value** in the event of a material breach[816](index=816&type=chunk)[819](index=819&type=chunk) [Taxation](index=138&type=section&id=E.%20Taxation) This subsection outlines the tax considerations for the company and its U.S. shareholders - As a British Virgin Islands (BVI) company, Arcos Dorados is **not liable for corporate taxation in the BVI**[835](index=835&type=chunk) - For U.S. Holders, distributions on Class A shares are generally treated as **foreign-source dividend income**[851](index=851&type=chunk) - The company believes it was **not a Passive Foreign Investment Company (PFIC)** for the 2024 taxable year[853](index=853&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=141&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details the company's exposure to foreign currency, commodity price, and interest rate risks - The company is exposed to **foreign currency risk** as revenues are in local currencies while debt is largely U.S. dollar-denominated[868](index=868&type=chunk)[869](index=869&type=chunk) - To mitigate foreign exchange risk, the company uses **derivative instruments**, including forward contracts and cross-currency swaps[868](index=868&type=chunk)[869](index=869&type=chunk)[870](index=870&type=chunk) - A sensitivity analysis shows a 10% appreciation of the Euro against the USD would result in an **$8.4 million foreign exchange loss**[871](index=871&type=chunk) - A 10% depreciation of the Brazilian real against the USD would result in a net **foreign exchange loss of $1.7 million**[874](index=874&type=chunk) - **Commodity price risk** for key supplies is managed through supplier hedging programs and pricing agreements[887](index=887&type=chunk) PART II [Controls and Procedures](index=145&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) This section addresses the effectiveness of the company's internal controls over financial reporting and disclosure - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2024[900](index=900&type=chunk)[901](index=901&type=chunk) - Management's annual report concluded that the company's **internal control over financial reporting was effective** as of December 31, 2024[905](index=905&type=chunk)[906](index=906&type=chunk) - The independent registered public accounting firm issued an **unqualified opinion on the effectiveness of internal controls**[907](index=907&type=chunk)[908](index=908&type=chunk) [Corporate Governance and Other Disclosures](index=148&type=section&id=ITEM%2016.%20Corporate%20Governance%20and%20Other%20Disclosures) This section covers corporate governance practices, accountant fees, and cybersecurity risk management Principal Accountant Fees (2023-2024) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | | (in thousands of U.S. dollars) | | | Audit fees | $3,272 | $2,574 | | Audit-related fees | $4 | $10 | | Tax fees | $507 | $440 | | All other fees | $29 | $48 | | **Total** | **$3,812** | **$3,072** | - As a foreign private issuer, the company **follows home country practices** in lieu of certain NYSE governance standards[931](index=931&type=chunk)[932](index=932&type=chunk) - The company has a **cybersecurity risk management program** aligned with the NIST framework, with no material threats identified in 2024[941](index=941&type=chunk)[942](index=942&type=chunk)[943](index=943&type=chunk) PART III [Financial Statements](index=152&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the company's audited consolidated financial statements and accompanying notes for fiscal years 2022-2024 [Notes to the Consolidated Financial Statements](index=167&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This subsection provides detailed notes on accounting policies, segment performance, debt, and contingencies - The company applies **hyperinflationary accounting** for its Venezuelan and Argentine subsidiaries, remeasuring financials to the U.S. dollar[992](index=992&type=chunk) - In 2024, the company recorded an **impairment charge of $1.1 million** on long-lived assets in several smaller markets[1013](index=1013&type=chunk) Long-Term Debt Composition (as of Dec 31, 2024) | Debt Instrument | Principal Amount (in thousands) | | :--- | :--- | | 2029 Notes | $334,200 | | 2027 Notes | $379,265 | | Finance lease obligations | $9,087 | | Other long-term borrowings | $2,791 | | **Total (before discounts/premiums)** | **$725,343** | - The company uses various **derivative instruments** to hedge foreign exchange risk, with a net fair value asset of **$81.1 million** as of Dec 31, 2024[1078](index=1078&type=chunk)[1079](index=1079&type=chunk)[1080](index=1080&type=chunk) - As of December 31, 2024, the company had a **provision for contingencies of $36.7 million**, primarily for tax and labor claims in Brazil[1135](index=1135&type=chunk)[1136](index=1136&type=chunk) - Subsequent to year-end, the company **issued $600 million in new notes due 2032** to redeem its 2027 notes and approved a dividend[1181](index=1181&type=chunk)[1183](index=1183&type=chunk)[1187](index=1187&type=chunk)

Company Overview - Arcos Dorados (ARCO) shares increased by 6.4% to close at $7.46, following a notable trading volume, contrasting with a 17.3% loss over the past four weeks [1] - The company is benefiting from digital transformation, loyalty program expansion, and the Experience of the Future (EOTF) restaurant modernization [1] Earnings Expectations - Arcos Dorados is expected to report quarterly earnings of $0.13 per share, reflecting a year-over-year decline of 7.1%, with revenues projected at $1.08 billion, a slight increase of 0.3% from the previous year [2] - The consensus EPS estimate for Arcos Dorados has remained unchanged over the last 30 days, indicating a lack of upward momentum in earnings estimate revisions [3] Industry Context - Arcos Dorados operates within the Zacks Retail - Restaurants industry, where another company, GEN Restaurant Group, Inc. (GENK), saw a 4.7% increase in its stock price, closing at $4.25, despite a significant decline of 35.6% over the past month [3] - GEN Restaurant Group's consensus EPS estimate has also remained unchanged at $0, representing a 100% decline from the previous year, and it currently holds a Zacks Rank of 4 (Sell) [4]

Core Insights - Arcos Dorados Holdings Inc. (ARCO) is positioned to benefit from digital transformation, loyalty program expansion, and restaurant modernization initiatives, despite facing challenging macroeconomic conditions [1] Growth Catalysts for ARCO Stock - The strategic "Four D's" — Digital, Delivery, Drive-thru, and Development — are key growth drivers, with digital sales increasing by 18% year-over-year in 2024 [2] - In 2024, ARCO opened 85 Experience of the Future (EOTF) restaurants and upgraded over 150 existing ones, achieving a 67% penetration of EOTF in its portfolio, with plans to open 90-100 new EOTF restaurants in 2025 [3] - Digital channels in Brazil accounted for nearly 70% of sales in Q4 2024, driven by app-based ordering and loyalty rewards, alongside successful marketing campaigns [4] Loyalty Program Expansion - The loyalty program added 12.6 million new members in 2024, totaling 15.8 million registered users, contributing 18% of Q4 sales in Brazil, Costa Rica, and Uruguay [5] - The program is set to expand into Argentina and Colombia in early 2025, with plans for broader rollout across all markets by late 2025 or early 2026 [5] Concerns for Arcos Dorados Stock - ARCO's shares have declined by 24.9% over the past six months, compared to a 4.6% decline in the industry, attributed to macroeconomic headwinds and shifts in consumer sentiment [7] - Anticipated softness in comparable sales growth for Q1 is linked to challenging year-over-year comparisons and weaker currency levels in core markets [8][9]

Financial Data and Key Metrics Changes - Full-year systemwide comparable sales grew by 1.7% adjusted for blended inflation, excluding Argentina, supported by growth in average check and guest volumes across all divisions [8] - Adjusted EBITDA reached $500 million for the first time in company history, with an all-time high EBITDA margin of 11.2% [9][29] - Full-year EBITDA margin also reached an all-time high, reflecting strong operating efficiencies despite challenging macroeconomic conditions [10][29] Business Line Data and Key Metrics Changes - Digital sales grew by 18% in U.S. dollars, with mobile app sales up 25% and delivery sales rising 17% [13] - Brazil's total revenue in constant currency grew by 9.2% in Q4, with comparable sales up by 5.5% [15] - NOLAD's total revenue rose by 5.5% in constant currency, driven by a 4.1% increase in comparable sales [18] - SLAD's comparable sales increased by 5.1% in Q4 and 9.8% for the year, excluding Argentina [22] Market Data and Key Metrics Changes - Digital channels accounted for nearly 70% of sales in Brazil, with significant contributions from the loyalty program [16] - EOTF restaurant penetration reached 67% of the total footprint, with plans to increase to at least 90% by the end of 2027 [14] - Argentina's U.S. dollar revenue was flat year-over-year, with volumes down only mid-single digits in December [25] Company Strategy and Development Direction - The Four D's Strategy (Digital, Delivery, Drive-thru, and Development) continues to leverage structural competitive advantages [6] - The company aims to maintain a disciplined opening process for new stores, targeting a 20% return on investment for new openings [58] - The company is focused on modernizing its restaurant portfolio and enhancing digital capabilities to drive sales growth and profitability [52][108] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding Argentina's economic stabilization, expecting improvements in operating conditions [78] - The company anticipates comparable sales growth to be at or above inflation for the full year 2025 in most markets, despite potential challenges in Q1 [62] - Management emphasized the resilience of the business model and the ability to adapt to changing consumer preferences and macroeconomic conditions [54] Other Important Information - Total debt decreased, but net debt rose due to capital expenditures, maintaining a net debt-to-adjusted EBITDA ratio of 1.1% [45] - Moody's upgraded the company's debt rating to Ba1 with a stable outlook, marking the highest combined rating in its history [46] Q&A Session Summary Question: Update on ROI for new free-standing stores - The company targets a 20% return on investment for new openings and has maintained this historical average [58] Question: Sales trends in the first quarter across markets - Comparable sales growth is expected to be at or above inflation for 2025, but Q1 may be a low point due to various factors [62] Question: Impact of anti-U.S. sentiment in Mexico - The company does not see significant impact, as McDonald's is well-regarded in the region [67] Question: Expectations for food and paper costs - Main pressure is from Brazil's beef costs, but improvements in other divisions are expected to offset this [71][73] Question: Traffic evolution in Argentina - Consumption was down for most of 2024, but there was a strong recovery at the end of the year, leading to optimism for 2025 [76][78] Question: Driving SLAD market expansion - Argentina, Chile, Colombia, and Uruguay are performing well, contributing to market expansion [82] Question: Breakdown of NOLAD's same-store sales - NOLAD's growth was driven by a strong affordability platform and solid marketing strategies [84] Question: Consumption trends in Mexico and Panama - Consumption is slowing due to currency concerns and inflation, but the company remains optimistic about its strategies [89] Question: Net income margin pickup in Q4 - The EBITDA margin expanded by 160 basis points, with contributions from various cost improvements [91] Question: Continued success of the loyalty program - The loyalty program has increased visit frequency by 30% and is expected to positively impact margins [99] Question: Raw materials prices and menu pricing outlook - The company will continue to be prudent with price increases, aiming to align with or below general inflation [102][106] Question: Comparison of digital strategy with competitors - The company is a leader in digitalization, which is a core part of its strategy and contributes to operational efficiencies [108] Question: Comp sales breakdown in Brazil - Growth in Brazil was driven by both traffic and average check, with a focus on maintaining market share [111] Question: Performance by channel in Brazil - Positive performance was noted in front counter and delivery, while drive-thru showed moderation in volume [115] Question: Additional cost pressure outlook - Main pressure is from Brazil's beef costs, but the company is working to offset these with improvements in other divisions [119]

分组1 - Arcos Dorados reported quarterly earnings of $0.28 per share, exceeding the Zacks Consensus Estimate of $0.22 per share, and showing an increase from $0.27 per share a year ago, resulting in an earnings surprise of 27.27% [1] - The company posted revenues of $1.14 billion for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 3.79%, although this represents a decrease from year-ago revenues of $1.16 billion [2] - Over the last four quarters, Arcos Dorados has surpassed consensus EPS estimates two times and topped consensus revenue estimates four times [2] 分组2 - The stock has increased approximately 7.1% since the beginning of the year, contrasting with the S&P 500's decline of -5.3% [3] - The current consensus EPS estimate for the upcoming quarter is $0.13 on revenues of $1.08 billion, and for the current fiscal year, it is $0.73 on revenues of $4.72 billion [7] - The Zacks Industry Rank indicates that the Retail - Restaurants sector is currently in the bottom 49% of over 250 Zacks industries, suggesting potential challenges for stock performance [8]

Financial Performance - Total revenues for Arcos Dorados Holdings Inc. increased to $4,470,162 thousand in 2024, up 3.2% from $4,331,878 thousand in 2023[24] - Net income attributable to Arcos Dorados Holdings Inc. decreased to $148,759 thousand in 2024, down 18.0% from $181,274 thousand in 2023[24] - Operating income rose to $324,515 thousand in 2024, compared to $314,039 thousand in 2023, reflecting a 3.9% increase[24] - Earnings per share attributable to Arcos Dorados Holdings Inc. were $0.71 in 2024, down from $0.86 in 2023[24] - Comprehensive income attributable to Arcos Dorados Holdings Inc. was $43,356 thousand in 2024, a decrease from $231,653 thousand in 2023[27] - The company reported a foreign currency exchange loss of $15,063 thousand in 2024, contrasting with a gain of $10,774 thousand in 2023[24] - Pre-tax income for 2024 was $259,282, a decrease of 6.8% from $278,117 in 2023[157] Assets and Liabilities - Total assets decreased from $3,019,238 in 2023 to $2,892,654 in 2024, a decline of approximately 4.2%[30] - Total current liabilities decreased from $841,670 in 2023 to $765,924 in 2024, a reduction of approximately 9.0%[30] - Total liabilities decreased from $2,502,399 in 2023 to $2,383,225 in 2024, a decline of about 4.8%[30] - Cash and cash equivalents decreased from $196,661 in 2023 to $135,064 in 2024, representing a decline of 31.2%[32] - The company reported a decrease in cash and cash equivalents at the end of the year, from $196,661 in 2023 to $135,064 in 2024, a decline of 31.2%[32] - The accumulated other comprehensive loss increased to $668.484 million in 2024 from $563.081 million in 2023, indicating a worsening of approximately 18.7%[35] Cash Flow and Investments - Net cash provided by operating activities was $266,847 in 2024, down from $381,965 in 2023, a decrease of 30.1%[32] - Property and equipment expenditures were $327,636 in 2024, compared to $360,097 in 2023, indicating a decrease of 8.9%[32] - The total net cash paid at acquisition date for restaurant businesses in 2024 was $6,083, compared to $2,081 in 2023[96] - The company reported cash paid for operating leases of $152,267 in 2024, an increase from $146,816 in 2023[144] Shareholder Information - The company declared cash dividends of $0.24 per share for 2024, totaling $50.557 million, compared to $0.19 per share in 2023, which amounted to $40.022 million, indicating a 26% increase in dividends paid[35] - As of December 31, 2024, total shareholders' equity was $509.429 million, up from $516.839 million in 2023, reflecting a decrease of about 1.6%[35] - The total number of Class A shares increased to 132,972,119 by December 31, 2024, from 132,964,031 in 2023, reflecting a slight increase[35] Tax and Compliance - The company's current income tax expense for 2024 was $121,292, up from $100,012 in 2023, representing a year-over-year increase of 21.9%[155] - The weighted-average statutory income tax rate increased to 38.7% in 2024 from 36.1% in 2023[157] - The Company is subject to potential tax assessments amounting to $165 million for the fiscal years 2009 to 2017[165] Franchise Operations - Brazil accounted for 39.6% of the group's revenues in 2024, with tax contingencies in Brazil representing 73% of the total provision for contingencies[21] - The company operates McDonald's restaurants in 20 territories, including Argentina, Brazil, and Mexico, with a significant presence in Latin America and the Caribbean[38] - Effective January 1, 2025, Arcos Dorados entered into new Master Franchise Agreements with McDonald's Corporation, extending the term to 20 years for most territories[39] Sustainability and Future Plans - The Company has sustainability performance targets to reduce greenhouse gas emissions by 15% in restaurants and offices and by 10% in the supply chain by December 31, 2025[120] - The company plans to open at least 200 new restaurants and modernize at least 400 restaurants, with capital expenditures of approximately $650 million from 2022 to 2024[181] Derivative Instruments and Debt - The Company has entered into various derivative instruments classified as cash flow hedges, with total notional amounts of $48,799,000 for forward contracts and $80,000,000 for cross-currency interest rate swaps as of December 31, 2024[136] - The fair value of the company's short and long-term debt was estimated at $766,897,000, compared to a carrying amount of $786,647,000[202] - The net interest expense and other financing results for 2024 showed a loss of $1,419, a significant increase from a loss of $181 in 2023[138]

Core Insights - ARCO has implemented Oracle Textura Payment Management to enhance collaboration with subcontractors and streamline construction payment processes [1][2] - The platform has managed payments for construction projects valued at over $1.5 trillion, showcasing its extensive use in the industry [2] - The integration with existing Vista Construction Accounting Software has facilitated a smooth onboarding process for ARCO's employees and subcontractors [3] Company Overview - ARCO is recognized as a leader in the construction industry, specializing in various industrial project types such as cold storage warehouses and light industrial distribution [5] - The company offers turn-key design-build services, ensuring cost savings and efficient communication through a single point of contact [5] - ARCO is 100% associate-owned as an Employee Stock Ownership Plan (ESOP), which aligns employee interests with company performance [5] Technology Implementation - The implementation of Oracle Textura has improved lien waiver management, providing a complete audit trail and reducing the risk of lost documents [3][4] - The platform has enabled better visibility for subcontractors regarding their invoices and payments, fostering improved collaboration [3] - The transition to a cloud-based payment management system has enhanced efficiency and risk management for ARCO [4]

Group 1 - The company's operations are experiencing growth, with the exception of challenges faced in Argentina due to a deep recession [1] - Despite the growth, margins do not appear to be improving any further [1] Group 2 - The investment approach focuses on long-only strategies, evaluating companies from an operational and buy-and-hold perspective [2] - The emphasis is on understanding the long-term earnings potential and competitive dynamics of the industries involved [2] - Most recommendations are expected to be holds, with only a small fraction of companies deemed suitable for buy at any given time [2]

Core Viewpoint - Arcos Dorados Holdings Inc. (ARCO) reported third-quarter 2024 results with earnings and revenues exceeding expectations, although the bottom line showed a significant decline year over year [1][2]. Financial Performance - Adjusted earnings per share (EPS) for Q3 were 17 cents, surpassing the Zacks Consensus Estimate of 16 cents, but down 39.3% from 28 cents in the same quarter last year [2]. - Revenues reached $1.13 billion, beating the consensus mark of $1.09 billion, reflecting a year-over-year increase of 0.8% [2]. Sales and Growth Metrics - Digital channel sales grew by 16% year over year, accounting for 58% of systemwide sales, driven by strong performance in Mobile App and Delivery services, as well as the expansion of the Loyalty Program [3]. - Comparable restaurant sales increased by 32.1% year over year, attributed to a significant rise in guest volume [3]. Operating Highlights - Operating income for the quarter was $79.8 million, down from $91.1 million in the prior-year quarter [4]. - Food and paper costs were reported at $381.2 million, slightly up from $376 million in the previous year [4]. - General and administrative expenses increased to $68.1 million from $67.8 million year over year [4]. EBITDA and Cash Flow - Adjusted EBITDA for Q3 was $125 million, compared to $129.1 million in the same quarter last year [5]. - Total cash and cash equivalents as of September 30, 2024, were $115.9 million, down from $196.7 million at the end of 2023 [6]. - Net debt increased to $598.3 million from $481.3 million at the end of 2023 [6]. Store Developments - The company opened 19 Experience of the Future (EOTF) restaurants during the third quarter, with 11 located in Brazil [7].