During this period, Burger King Worldwide Inc (NYSE:BKW)`s revenue fell by almost 43% year on year to $328 million, while net income surprisingly grew by a stunning 153% year over year to almost $36 million for the entire company. But even more impressively, over that 12-month period Burger King Worldwide Inc (NYSE:BKW) was able to convert 11% of its revenue into free cash flow. However, unlike Arcos Dorados Holding Inc (NYSE:ARCO), Burger King does not derive a significant a significant proportion of its revenue from Brazil. Therefore, it is unlikely that these events will drive a significant growth in its sales.
The other competitor having a significant impact on Arcos Dorados Holding Inc (NYSE:ARCO) in Brazil, is domestically owned Brazil Fast Foods (OTC BB:BOBS), which has over 1,040 restaurants and other points of sale across Brazil. This has made it the second-largest hamburger chain in the country, and Arcos Dorados’ key competitor there.
It has also strengthened its position through a partnership arrangement with Yum! Brands, Inc. (NYSE:YUM), which allows it to operate 14 KFC stores as franchisee. Brazil Fast Foods also operates 22 Pizza Hut stores as part of its multi-brand strategy. The company reported some solid numbers for the first quarter of 2013, because despite revenue falling by 16% year on year to $29 million, net income surged ahead by 76% to $3.4 million.
Brazil Fast Foods is the most likely beneficiary from the FIFA World Cup and the Olympics, but investors should be aware that it does come with risks that don’t affect either Arcos Dorados Holding Inc (NYSE:ARCO) or Burger King Worldwide Inc (NYSE:BKW). The company is considering de-registering its U.S. OTC shares because of cost savings, and has no intention to raise funds in the U.S. In addition, as an OTC stock it is thinly traded leading to liquidity issues for investors.
Bottom line
Brazil Fast Foods is certainly a stand out performer in the Brazil fast food industry and more than likely will receive the greatest benefit from the FIFA World Cup and Olympics. But the risks around it de-registering its shares and liquidity issues certainly do not make it an appetizing investment except for the most risk tolerant investor. It is also clear Arcos Dorados Holding Inc (NYSE:ARCO) is having problems performing, but both of those events will more than likely be solid short-term catalyst that will help to lift a flagging performance.
The article Cashing In on Brazil’s World Cup and Olympics with Fast Food Restaurant Chains originally appeared on Fool.com and is written by Matt Smith.
Matt Smith has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide (NYSE:BKW). The Motley Fool owns shares of Arcos Dorados. Matt is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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