Financial Performance - Total revenues for the nine-month period ended September 30, 2024, increased to $3,325,942, up 5.4% from $3,156,423 in 2023[10] - Net income attributable to Arcos Dorados Holdings Inc. for the same period was $90,355, a decrease of 28.1% compared to $125,496 in 2023[10] - Basic and diluted net income per common share attributable to Arcos Dorados Holdings Inc. was $0.43, down from $0.60 in 2023[10] - Total operating costs and expenses rose to $3,104,347, an increase of 6.2% from $2,924,171 in 2023[10] - Comprehensive income attributable to Arcos Dorados Holdings Inc. was $47,479, significantly lower than $158,135 in 2023[13] - Adjusted EBITDA for the same period was $352,716, up from $339,680 in 2023, reflecting a growth of 3.05%[94] Cash Flow and Liquidity - Cash and cash equivalents decreased to $115,908 as of September 30, 2024, from $196,661 at the end of 2023[16] - Net cash provided by operating activities for the nine-month period was $159,794, down from $232,277 in 2023[18] - The company maintained a provision for contingencies of $36,151 as of September 30, 2024, down from $50,619 at the end of 2023[87] - The fair value of cash equivalents as of September 30, 2024, was $57,381,000, compared to $113,726,000 at December 31, 2023, reflecting a decrease of 49.5%[121] Assets and Liabilities - Total assets decreased to $2,961,117 as of September 30, 2024, from $3,019,238 at the end of 2023[16] - Total liabilities decreased to $2,447,643 as of September 30, 2024, from $2,502,399 at the end of 2023[16] - The company reported a retained earnings balance of $510,410 thousand at the end of the period, up from $424,936 thousand at the beginning of the fiscal year[23] - Long-term debt totaled $719,307 thousand as of September 30, 2024, slightly up from $714,841 thousand as of December 31, 2023, reflecting a marginal increase of approximately 0.65%[53] Shareholder Information - The company declared cash dividends of $0.19 per share, totaling $40,022 thousand to shareholders during the nine-month period[23] - The company plans to distribute a cash dividend of $0.24 per share in four installments throughout 2024, with $37,917 paid as of September 30, 2024[104] - As of September 30, 2023, total shareholders' equity amounted to $442,681 thousand, reflecting an increase from $441,763 thousand at the beginning of the fiscal year[23] Market Presence and Operations - The company operates and franchises McDonald's restaurants across 20 territories in Latin America and the Caribbean, indicating a strong market presence[27] - The company plans to finalize a new 20-year Master Franchise Agreement with McDonald's Corporation, effective January 1, 2025, which will enhance its operational framework[26] - 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[80] Foreign Currency and Derivatives - The company reported a foreign currency translation loss of $51,044 for the nine-month period ended September 30, 2024[13] - The Company has implemented measures to mitigate foreign currency fluctuations through various derivative instruments, including cross-currency interest rate swaps and foreign currency forwards[56] - The total fair value of derivative instruments was $70,176,000, compared to $46,605,000 as of December 31, 2023, representing a significant increase[58] Debt and Financing - The Company renewed its revolving credit facility with J.P. Morgan for $25 million, maturing on February 17, 2026, and signed additional revolving credit facilities totaling $50 million with Itaú Unibanco S.A. and Banco Santander (Brasil) S.A.[47] - The net indebtedness to EBITDA ratio was reported at 1.23x as of September 30, 2024, well below the covenant requirement of 3.00x[49] - The maximum leverage ratio required by the banks was 4.25, while the actual ratios were significantly lower at 0.27 for Itaú and 0.46 for both Credit Suisse and J.P. Morgan as of September 30, 2024[85] Other Comprehensive Income - The company reported a net current-period other comprehensive loss of $42,876,000 for the nine-month period ended September 30, 2024[106] - As of September 30, 2024, total accumulated other comprehensive loss was $605,957,000, compared to $563,081,000 at December 31, 2023, indicating an increase of 7.6%[106] Expenses - For the nine-month period ended September 30, 2024, food and paper expenses amounted to $255,469,000, an increase of 9.7% from $232,755,000 in 2023[110] - The company reported property and equipment expenditures of $239,169 for the nine-month period, compared to $227,753 in 2023, indicating an increase of 5.88%[96]

Core Viewpoint - Arcos Dorados Holdings Inc. (ARCO) is expected to report a decline in earnings and revenues for Q3 2024, primarily due to high costs and weakened consumer demand, particularly in Argentina [2][3]. Group 1: Earnings and Revenue Estimates - The Zacks Consensus Estimate for ARCO's earnings is 16 cents per share, reflecting a 46.7% decrease year over year [2]. - The consensus revenue estimate is $1.11 billion, which represents a 0.4% decline compared to the previous year [2]. Group 2: Factors Impacting Performance - High operational costs, including labor, utilities, and IT, are likely to have negatively affected margins across ARCO's key markets, with Mexico facing increased payroll expenses due to wage inflation [3][4]. - The company's significant investments in digital and IT infrastructure, aimed at enhancing long-term efficiency and customer experience, may have led to increased short-term operational expenses [3]. Group 3: Positive Indicators - Despite challenges, ARCO is expected to benefit from robust comparable sales, expansion efforts, and strong performance in Brazil and North Latin America, which may have contributed to positive guest traffic during the quarter [5]. - Strong digital sales are anticipated to have supported ARCO's quarterly performance [5]. Group 4: Earnings Prediction Model - Current analysis indicates that ARCO's model does not predict an earnings beat, as the Earnings ESP stands at 0.00% and the Zacks Rank is 4 (Sell) [6][7].

Core Viewpoint - Arcos Dorados stock is considered a bargain due to fast growth, a low valuation, and an unchanged royalty rate following the renewal of its master franchise agreement with McDonald's [1][2]. Group 1: Master Franchise Agreement Renewal - Arcos Dorados has replaced its existing master franchise agreement with a new 20-year agreement effective January 1, 2025 [2]. - The new agreement stipulates a royalty payment of 6% of gross sales for the first 10 years, increasing to 6.25% for years 11-15, and 6.5% for years 16-20 [2][3]. - The royalty rate will remain unchanged at 6% until 2034, providing stability for the company's profit margins despite potential sales growth [2]. Group 2: Growth Potential - Management believes there are significant growth opportunities in the 20 countries and territories where Arcos Dorados operates, including plans to open approximately 90 to 100 new restaurants in 2025 [3]. - Analysts project a 16% annualized earnings growth for Arcos Dorados over the next five years, supported by the new master franchise agreement [4]. Group 3: Valuation Metrics - The stock is currently valued at less than 11 times its trailing-12-month earnings, indicating a cheap valuation [4]. - The company has a PEG ratio of only 0.7, suggesting that the stock is undervalued relative to its expected growth [4].

Core Viewpoint - Three stocks have been added to the Zacks Rank 5 (Strong Sell) List, indicating a negative outlook for these companies based on recent earnings estimate revisions [1] Company Summaries - **Arcos Dorados Holdings Inc. (ARCO)**: This company, a franchisee of McDonald's, has seen its current year earnings estimate revised downward by 10% over the last 60 days [1] - **BM Technologies, Inc. (BMTX)**: A financial technology firm, BM Technologies has experienced a significant downward revision of 132.1% in its current year earnings estimate over the past 60 days [1] - **Bio-Techne Corporation (TECH)**: This life sciences and diagnostics company has had its current year earnings estimate revised downward by 9.2% in the last 60 days [1]

Core Insights - Arcos Dorados Holdings Inc. (ARCO) reported second-quarter 2024 results with earnings in line with estimates and revenues surpassing expectations for the fourth consecutive quarter [1][2] - The company's shares declined by 4.7% following the results announcement on August 15 [1] Financial Performance - Adjusted earnings per share (EPS) for the second quarter were 13 cents, remaining flat year over year [2] - Quarterly revenues reached $1,110.9 million, exceeding the consensus estimate of $1,056 million, and reflecting a year-over-year increase of 6.8% [2] - Systemwide comparable sales improved by 40.8% year over year, driven by increased guest traffic and effective omnichannel strategies [2] Operating Metrics - Operating income for the second quarter was $74.2 million, slightly down from $74.9 million in the prior-year quarter [3] - Food and paper costs increased to $372.9 million from $351.7 million year over year [3] - General and administrative expenses rose to $73 million compared to $69.5 million in the previous year [3] - Adjusted EBITDA was reported at $118.8 million, up from $110.1 million in the prior-year quarter [3] Balance Sheet Overview - As of June 30, 2024, cash and cash equivalents totaled $104.2 million, down from $196.7 million on December 31, 2023 [4] - Total financial debt decreased slightly to $724.6 million from $729.8 million as of December 31, 2023 [4] Expansion Initiatives - In the first half of 2024, the company launched 37 Experience of the Future (EOTF) restaurants, with 34 being free-standing locations [5] - In Brazil, the largest market, 21 EOTF restaurants were introduced, including 20 new free-standing units [5]

Core Viewpoint - Three stocks have been added to the Zacks Rank 5 (Strong Sell) List, indicating a negative outlook for these companies based on recent earnings estimate revisions [1] Company Summaries - **Arcos Dorados Holdings Inc. (ARCO)**: A franchisee of McDonald's restaurants, the Zacks Consensus Estimate for its current year earnings has been revised downward by 13.5% over the last 60 days [1] - **CONMED Corporation (CNMD)**: A medical technology company that sells surgical devices, the Zacks Consensus Estimate for its current year earnings has been revised downward by 7.2% over the last 60 days [1] - **CVS Health Corporation (CVS)**: A provider of healthcare solutions, the Zacks Consensus Estimate for its current year earnings has been revised downward by 6.4% over the last 60 days [1]

Core Viewpoint - Arcos Dorados is positioned as a leading player in the Latin American QSR industry, benefiting from a growing market and economic strength in the region, which supports its expansion opportunities [1][2]. Company Performance - Arcos Dorados reported a 6.7% top-line growth, significantly outperforming its parent company McDonald's by over 670 basis points and exceeding analyst consensus estimates by 470 basis points [3][4]. - The systemwide comparable sales increased by 40.8%, with a 10.2% growth when adjusted for inflation in Argentina, driven by digital channels that accounted for 57% of revenue [4]. - Despite the growth, net income decreased compared to the previous year, and earnings per share remained flat due to one-off costs, although the company maintained a strong cash flow to support its balance sheet [4]. Market Position and Valuation - Arcos Dorados trades at a P/E ratio of 12.40, which is significantly lower than McDonald's, providing a value opportunity for investors [5]. - The company has a dividend yield of 2.39% and pays out less than 30% of its earnings, compared to McDonald's 55%, indicating a potentially robust distribution growth outlook [5]. Technical Outlook - The stock is currently in an uptrend, but there is a risk of a deeper correction if it fails to break through resistance at the 150-day EMA, with potential support levels at $9.00 and $7.50 [6]. - The expectation is that the stock will continue its upward trajectory, possibly reaching new highs in early 2025 [6].

Arcos Dorados Holdings Inc. (NYSE:ARCO) Q2 2024 Earnings Conference Call August 14, 2024 10:00 AM ET Company Participants Dan Schleiniger - Investor Relations Marcelo Rabach - Chief Executive Officer Luis Raganato - Chief Operating Officer Mariano Tannenbaum - Chief Financial Officer Dan Schleiniger Good morning, everyone, and thank you for joining our Second Quarter 2024 Earnings Webcast. With us today are Marcelo Rabach, our Chief Executive Officer; Luis Raganato, our Chief Operating Officer; and Mariano ...

Arcos Dorados 2 nd Quarter 2024 Results August 14, 2024 ARCO LISTED NYSE Disclaimer This presentation contains forward-looking statements that represent our beliefs, projections and predictions about future events or our future performance. Forward-looking statements can be identified by terminology such as "may," "will," "would," "could," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" or the negative of these terms or other similar expressions ...

[Financial Performance and Position](index=5&type=section&id=Financial%20Performance%20and%20Position) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Arcos Dorados' H1 2024 revenues increased 7.9% to $2.19 billion, but net income decreased 16.2% to $55.1 million, with diluted EPS of $0.26 | Financial Metric | H1 2024 (in thousands USD) | H1 2023 (in thousands USD) | Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | **2,192,257** | **2,031,313** | **+7.9%** | | Company-operated restaurants | 2,092,131 | 1,940,884 | +7.8% | | Franchised restaurants | 100,126 | 90,429 | +10.7% | | **Operating Income** | **141,770** | **141,177** | **+0.4%** | | **Net Income Attributable to Company** | **55,141** | **65,775** | **-16.2%** | | Earnings Per Share | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Basic EPS | $0.26 | $0.31 | | Diluted EPS | $0.26 | $0.31 | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2024, total assets decreased to $2.90 billion, primarily due to reduced cash, leading to a 9.0% decline in equity to $470.5 million | Balance Sheet Item | June 30, 2024 (in thousands USD) | Dec 31, 2023 (in thousands USD) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 104,216 | 196,661 | -47.0% | | **Total Current Assets** | **513,133** | **605,278** | **-15.2%** | | **Total Assets** | **2,896,023** | **3,019,238** | **-4.1%** | | **Total Current Liabilities** | **816,618** | **841,670** | **-3.0%** | | **Total Liabilities** | **2,425,495** | **2,502,399** | **-3.1%** | | **Total Equity** | **470,528** | **516,839** | **-9.0%** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) H1 2024 operating cash flow decreased to $63.7 million, while investing activities used $134.0 million, resulting in a $92.4 million net decrease in cash | Cash Flow Activity (H1) | 2024 (in thousands USD) | 2023 (in thousands USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | 63,707 | 84,256 | | Net cash used in investing activities | (134,031) | (109,032) | | Net cash used in financing activities | (17,566) | (27,871) | | **Decrease in cash and cash equivalents** | **(92,445)** | **(65,445)** | | **Cash and cash equivalents at end of period** | **104,216** | **201,492** | - Property and equipment expenditures increased to **$148.9 million** in H1 2024 from **$123.1 million** in H1 2023[13](index=13&type=chunk) - Dividend payments to shareholders increased to **$25.3 million** in H1 2024 from **$21.1 million** in H1 2023[13](index=13&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [Business Overview and Accounting Policies](index=11&type=section&id=Business%20Overview%20and%20Accounting%20Policies) Arcos Dorados operates McDonald's in 20 Latin American territories under MFAs through 2027, remeasuring financials for hyperinflationary economies - The company's rights to operate McDonald's-branded restaurants in Latin America and the Caribbean derive from Master Franchise Agreements (MFAs) with McDonald's Corporation, which are effective through **2027**[24](index=24&type=chunk) - The company operates in **twenty territories**, including major markets like Brazil, Mexico, and Argentina[25](index=25&type=chunk) - Due to being considered highly inflationary economies, the financial statements of the Argentinian (since July 2018) and Venezuelan (since Jan 2010) subsidiaries are remeasured using the **US dollar** as the functional currency[33](index=33&type=chunk) - The company is assessing the impact of new accounting standards, ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), which will be effective for future fiscal years[39](index=39&type=chunk) [Debt and Financing](index=14&type=section&id=Debt%20and%20Financing) The company's debt structure includes $38.6 million in short-term debt and $715.8 million in long-term debt, with compliance across all covenants [Short-term Debt](index=14&type=section&id=Short-term%20Debt) Short-term debt increased to $38.6 million, supported by two $25 million revolving credit facilities, with the company in compliance with debt covenants | Debt Component | June 30, 2024 (in thousands USD) | Dec 31, 2023 (in thousands USD) | | :--- | :--- | :--- | | Short-term bank loans | 37,581 | 29,502 | | Bank overdrafts | 1,042 | 31 | | **Total** | **38,623** | **29,533** | - The company renewed its **$25 million** revolving credit facility with J.P. Morgan, maturing in **Feb 2026**, and signed a new **$25 million** facility with Itaú Unibanco, maturing in **April 2025**[46](index=46&type=chunk) - The company was in compliance with its consolidated net indebtedness to EBITDA ratio covenant, which was **1.18x** as of June 30, 2024, well below the required maximum of **3.00x**[48](index=48&type=chunk) [Long-term Debt](index=16&type=section&id=Long-term%20Debt) Total long-term debt remained stable at $715.8 million, primarily comprising 5.875% Senior Notes due 2027 and 6.125% Senior Notes due 2029 | Debt Component | June 30, 2024 (in thousands USD) | Dec 31, 2023 (in thousands USD) | | :--- | :--- | :--- | | 2029 Notes | 334,200 | 334,200 | | 2027 Notes | 379,265 | 379,265 | | Other (Finance leases, etc.) | 10,121 | 10,198 | | **Total (before discounts/costs)** | **723,586** | **723,663** | | **Total Long-term Debt (net)** | **715,805** | **714,841** | [Financial Instruments and Risk Management](index=17&type=section&id=Financial%20Instruments%20and%20Risk%20Management) The company uses derivatives, mainly swaps and forwards, to manage foreign exchange and interest rate risks, with $66.1 million in derivative assets [Derivative Instruments](index=17&type=section&id=Derivative%20Instruments) The company uses cash flow hedges, including forwards and swaps, to mitigate foreign exchange risk, with total derivative assets of $66.1 million | Derivative Fair Value | Assets (in thousands USD) | Liabilities (in thousands USD) | | :--- | :--- | :--- | | **Designated as Hedges** | **56,564** | **(1,560)** | | Forward contracts | 1,377 | — | | Swaps (various) | 55,187 | (1,560) | | **Not Designated as Hedges** | **9,486** | **(17,071)** | | **Total** | **66,050** | **(18,631)** | - The company uses forward contracts to hedge foreign exchange risk on forecasted imports of goods, with gains/losses expected to be reclassified into earnings within **12 months**[59](index=59&type=chunk) - Through its Brazilian subsidiary, the company uses various swaps to hedge exposure on intercompany loans, with gains/losses expected to be reclassified into earnings within the next **5 years**[60](index=60&type=chunk) [Fair Value Measurements](index=30&type=section&id=Fair%20Value%20Measurements) Financial assets and liabilities are measured at fair value, with total assets at $138.4 million and debt fair value at $707.5 million - Derivative contracts are valued using models with observable market parameters (interest rate curves, volatilities), classifying them as **Level 2** in the fair value hierarchy[129](index=129&type=chunk)[132](index=132&type=chunk) | Fair Value Hierarchy (June 30, 2024) | Level 1 (in thousands USD) | Level 2 (in thousands USD) | Total (in thousands USD) | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash equivalents | 37,242 | — | 37,242 | | Short-term Investments | 30,000 | 5,140 | 35,140 | | Derivatives | — | 66,050 | 66,050 | | **Total Assets** | **67,242** | **71,190** | **138,432** | | **Liabilities** | | | | | Derivatives | — | 18,631 | 18,631 | | **Total Liabilities** | **—** | **18,631** | **18,631** | - The estimated fair value of the company's short-term and long-term debt was **$707.5 million**, which is lower than its carrying amount of **$762.5 million** as of June 30, 2024[133](index=133&type=chunk) [Equity and Compensation](index=20&type=section&id=Equity%20and%20Compensation) The company uses a cash-settled Phantom RSU Award plan for incentives, with 2.18 million units outstanding, and approved a $0.24 per share dividend for 2024 [Share-based Compensation](index=20&type=section&id=Share-based%20Compensation) The cash-settled Phantom RSU Award plan is the primary long-term incentive, with 2.18 million units outstanding and a total fair value of $19.7 million - The company implemented a **cash-settled Phantom RSU Award plan** in May 2019 as its new long-term incentive program[74](index=74&type=chunk) | Phantom RSU Plan (as of June 30, 2024) | Value | | :--- | :--- | | Number of units outstanding | 2,183,364 | | Total fair value of the plan | $19.65 million | | Accrued liability | $7.93 million | | Compensation expense not yet recognized | $11.72 million | [Shareholders' Equity](index=27&type=section&id=Shareholders%27%20Equity) The company's capital includes Class A and B shares, with 210.7 million outstanding, and approved a $0.24 per share cash dividend for 2024 - Holders of Class A shares have **one vote per share**, while holders of Class B shares have **five votes per share**[106](index=106&type=chunk) - On March 12, 2024, the company approved a total cash dividend of **$0.24 per share** for 2024, payable in **four quarterly installments**[107](index=107&type=chunk) [Operational and Segment Information](index=21&type=section&id=Operational%20and%20Segment%20Information) The company operates across Brazil, NOLAD, and SLAD, with Brazil leading H1 2024 performance, while adhering to McDonald's Corp. commitments and covenants [Segment Performance](index=24&type=section&id=Segment%20Performance) In H1 2024, Brazil led segment performance with $890.9 million in revenues and $161.6 million in Adjusted EBITDA, contributing to an 8.1% consolidated increase | H1 2024 Revenues by Segment | Revenue (in thousands USD) | vs. H1 2023 | | :--- | :--- | :--- | | Brazil | 890,927 | +14.3% | | NOLAD | 612,926 | +14.2% | | SLAD | 688,404 | -3.7% | | **Total** | **2,192,257** | **+7.9%** | | H1 2024 Adjusted EBITDA by Segment | Adj. EBITDA (in thousands USD) | vs. H1 2023 | | :--- | :--- | :--- | | Brazil | 161,614 | +25.7% | | NOLAD | 54,763 | +5.5% | | SLAD | 55,312 | -28.7% | | **Total Reportable Segments** | **271,689** | **+5.3%** | - Total capital expenditures for H1 2024 were **$148.9 million**, with SLAD accounting for the largest portion at **$60.8 million**[101](index=101&type=chunk) [Commitments and Contingencies](index=21&type=section&id=Commitments%20and%20Contingencies) The company commits to a growth plan with McDonald's, including $650 million in capex, is compliant with MFA covenants, and holds $33.5 million in contingency provisions - The company has a growth plan with McDonald's to open at least **200 new restaurants** and modernize **400 others** from **2022 to 2024**, with capex of **~$650 million**. In return, McDonald's provides royalty rate support[82](index=82&type=chunk) - The company was in compliance with its MFA covenants, with a Fixed Charge Coverage Ratio of **2.25** (vs. min **1.50**) and a Leverage Ratio of **3.17** (vs. max **4.25**) as of June 30, 2024[81](index=81&type=chunk)[84](index=84&type=chunk) | Provision for Contingencies | June 30, 2024 (in thousands USD) | Dec 31, 2023 (in thousands USD) | | :--- | :--- | :--- | | Tax contingencies in Brazil | 24,844 | 40,583 | | Labor contingencies in Brazil | 10,751 | 12,674 | | Others | 5,442 | 5,929 | | **Net Provision** | **33,506** | **50,619** | - The company disclosed a potential loss contingency for certain matters ranging from **$471 million** to **$513 million**, for which a loss is reasonably possible but not yet probable[88](index=88&type=chunk) [Related Party Transactions](index=29&type=section&id=Related%20Party%20Transactions) The company incurred $173.6 million in costs with related party Axionlog for logistics and distribution services during the first six months of 2024 - The company has a master commercial agreement with Axionlog, a related party, for logistics and distribution services in most of its operating territories[117](index=117&type=chunk) | Expenses with Axionlog (H1) | 2024 (in thousands USD) | 2023 (in thousands USD) | | :--- | :--- | :--- | | Food and paper | (168,216) | (152,063) | | Occupancy and other operating expenses | (5,366) | (4,547) | | **Total** | **(173,582)** | **(156,610)** |