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Where's the beef? Wendy’s serves up a 10% stock price surge for impatient investors

14:17, 25 May 2022

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A Wendy's restaurant in Florida
Wendy’s stock rose after an activist hedge fund took a bigger bite of the burger chain, saying it was in talks over a possible sale of the business – Photo: Getty Images

A fast food chain’s stock rose on Wednesday as an activist shareholder said it was in talks with company management on a possible sale of the business.

The Wendy’s Company (WEN) stock rose as high as 9% in pre-market trading on Wednesday. For the year to date the stock is down 32%.

The Wendy’s Company (WEN) stock proce

Founded in 1969 by entrepreneur Dave Thomas in Columbus, Ohio, Wendy’s operates approximately 7,000 fast food restaurants worldwide.

Wendy's corporate logo with famous red-haired girlWendy's

The company is best known for its “Where’s the beef?” adverts shown in North America in the 1980’s and its corporate logo of a red-haired girl, modelled on the founder’s young daughter. The company competes against McDonald’s (MCD) and Burger King, part of Restaurant Brands International (RBI).

Activist shareholder

Trian Partners, an activist hedge fund headed by Nelson Peltz, is the largest shareholder of Wendy’s with a 19.4% stake and is exploring a potential deal with the company, according a regulatory filing.

Hedge funds are specialist investment firms that pool together money from high net worth investors in order to generate market-beating returns with fund managers taking a percentage of the profits as a fee.

Activist hedge funds take stakes in companies in order to turn them around and unlock shareholder value.

Trian said it held talks with the company’s management over a “potential transaction with respect to [Wendy’s] to enhance shareholder value,” according to the filing.

The hedge fund holds three seats on Wendy’s board including Peltz as company chairman. Peltz’s firm has been an investor since 2005 and has undertaken various corporate initiatives since taking a stake in the burger chain.

Slide showing corporate initiatives at Wendy'sTrian Partners

“Consistent with its fiduciary duties, the board will carefully review any proposal submitted by Trian Partners,” Wendy’s responded in a press release.

Earnings

Slide showing Q1 earnings from Wendy'sWendy's

Earlier this month, Wendy’s reported earnings of 17 cents per share on total revenues of $488.6m (£390m, €458m).

Analysts were expecting earnings of 18 cents on revenue of $497.1m, according to figures widely available on financial news sites.

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“As demonstrated by our recent first quarter results, we continue to make meaningful progress against our three strategic growth pillars, reinforcing the strength and resiliency of the Wendy's brand and driving robust [average unit volume] and sales increases,” Wendy’s said.

Average unit volume is a measure of how competitive franchised restaurants are by dividing total sales by the number of outlets.

Global same-store sales grew 2.4% during the quarter, down from the 12.5% growth from a year earlier.

The company told investors that its commodity costs were increasing faster than expected, driven by higher beef prices. Wendy's serves fresh beef at its US and Canadian outlets.

Foot traffic at Wendy's restaurants also tapered off in the most recent quarter with low-income customers making up part of the drop-off, the company said in an earnings call.

 

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