Wendys Co (WEN) Board Gets New Member, Matthew Peltz

Wendys Co (WEN) Board Gets New Member, Matthew Peltz
Chart via Capital IQ

Fast food giant Wendys has a new Peltz on board.

The restaurant chain announced on Tuesday that Matthew Peltz, the son of Wendys Chairman Nelson Peltz, had been added to its board of directors as it boosted the size of the BoD.

The Ohio-based fast-food restaurant noted that Edward Garden, the CIO at Peltz’s Trian Partners, was resigning from its board. Garden will be spending more time with other business and personal commitments in the future.

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After a rough couple of years, Wendy’s shares are up almost 18% so far in 2015.

More on Matthew Peltz joining Wendys board

Matthew Peltz was elected by the board to fill the departing Garden’s position on the board. Matthew Peltz has been with Trian since 2008. Of note, Trian is Wendy’s largest shareholder with an almost 15% stake.

Dennis Kass was also elected to the Wendy’s board at the same time as the younger Peltz. The new additions mean the size of the restaurant chain’s board has increased from 10 to 11 members. Kass is a retired J.P. Morgan and Goldman Sachs exec and former member of President Reagan’s administration.

In a statement, David Schwab, the chairman of Wendy’s board’s nominating and corporate governance committee, commented that both Peltz and Kass provide the board with notable financial expertise.

The historic fast food chain includes more than 6,500 franchised and company-owned outlets today, but has been in the process of selling off many of its company-owned properties, eventually targeting 5% company ownership across its system. Restaurant industry analysts point out that several larger restaurant chains have moved away from the ownership model to try and develop more predictable cash flows year round.

In its most recent quarter, Wendys reported sales of $464.6 million, a decrease from $496.7 million in the third quarter a year earlier. Wendy’s net profits in the third quarter decreased to $7.6 million from $22.8 million in the third quarter a year earlier.

In a 2013 letter to investors, Nelson Peltz told investors:

On July 23, 2013, Wendy’s announced plans to help optimize its restaurant portfolio by concentrating its ownership geographically and reducing total system ownership from 22% to approximately 15% with the planned sale of 425 company-operated restaurants to franchise operators by the end of the second quarter of 2014. An important part of the company’s brand transformation (which includes reimaging and developing new restaurants, the new Wendy’s logo, updated menu boards, innovative products and bold new packaging), the system optimization initiative is expected to create a growth opportunity for both the company and strong franchise operators by expanding participation in their “Image Activation” program to a larger base of franchisees.

The company also expects to generate a higher operating margin and stronger free cash flow, along with further enhancing the quality of their earnings with a more predictable revenue stream from a higher percentage of royalty and rent income, enabling it to increase long-term EPS growth rate and return incremental cash to shareholders in the form of dividends and share repurchases, beginning with a 25% increase in the company’s third-quarter dividend. The market reacted positively to the announcement.

On May 8, 2013, Wendy’s reported first quarter adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $77 million, up 21% vs. last year and 5% ahead of consensus expectations. Strong earnings momentum was driven by positive company-operated same-store-sales growth (of 1%, despite negative headwinds from holiday shift and weather), continued execution of the “Image Activation” program and efficient cost management.

Wendy’s improved company-operated store-level margins by 100 bps and reduced G&A costs as a percentage of sales by nearly 140 bps (year-over-year). For 2013, Wendy’s reiterated its outlook for adjusted EBITDA of $350 to $360 million, plans to build 125 new stores and remodel 200 stores as part of its “Image Activation” program.

Wendy’s Board continues to focus on maximizing long-term shareholder value through capital allocation and balance sheet opportunities. To that end, in April 2013, Wendy’s announced the refinancing of its existing credit facility which is expected to generate ~$20 million in ongoing annualized interest expense savings, including $12 million in 2013.

We believe the company has made substantial strides year to date and we will continue to work with Wendy’s leadership team to improve marketing, operations and capital allocation.

It looks like the Wendys thesis has bit a bit of a disappointment to Peltz.

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