Collins Foods earnings call: record results, cautious outlook

Collins Foods Limited ((AU:CKF)) has held its Q4 earnings call. Read on for the main highlights of the call.

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Collins Foods delivered a confident earnings call, underpinned by record revenue, record underlying profit and stronger cash generation that eased leverage concerns. Management balanced this upbeat tone with a candid acknowledgment of margin pressures, European trading softness and cost headwinds, but framed these as manageable issues that can be addressed through targeted product, pricing and efficiency actions in FY27.

Record top-line growth and revenue milestones

Revenue from continuing operations reached $1.59 billion, up 8.6% year-on-year, marking a new high for Collins Foods. Including the now-discontinued Taco Bell business, group revenue was $1.64 billion, with Taco Bell contributing $47.7 million before the planned exit.

Underlying profitability at all-time highs

Underlying NPAT climbed 13% to a record $61.4 million, supported by underlying EBITDA of $244.5 million and EBIT of $130.7 million. Margins nudged higher, with underlying EBIT margin improving by 11 basis points to 8.2%, signaling solid operational leverage despite cost pressures.

Statutory earnings rebound sharply

Statutory NPAT from continuing operations surged to $47.1 million, an increase of 280% versus the prior year. The rebound reflects fewer non-trading charges and stronger core trading, even though some impairments and settlements continued to weigh on reported profit.

Cash generation strengthens balance sheet

Net operating cash flow after interest and tax was $150.1 million, with pre-interest and tax cash flow at $232.6 million and an impressive 94% cash conversion. This robust cash performance helped cut net debt by $18.3 million to $119.6 million and lowered the net leverage ratio to 0.77, while return on equity rose 220 basis points to 14.5%.

Dividend uplift rewards shareholders

The board declared a final dividend of $0.15 per share, taking the fully franked FY26 dividend to $0.28 per share, up 7.7% year-on-year. This payout matches the highest dividend level seen in FY24 and reflects management’s confidence in future cash flows.

Australian KFC network maintains strong momentum

KFC Australia delivered revenue of $1,241 million, up 7.6%, with same-store sales rising 2.7% compared with just 0.3% in FY25. The business opened eight new restaurants to reach 295 sites, completed 33 remodels and lifted restaurant-level EBITDA to $260 million, up 6.2% despite a modest margin squeeze.

Europe shows recovery, led by Germany

European operations posted revenue of $351 million, up 12.5% and 7% in constant currency, with EBITDA of $44.9 million increasing 14% and margins edging up to 12.8%. Germany’s same-store sales swung from a 3.3% decline last year to 3.7% growth, while the acquisition of eight restaurants near Munich made Collins the largest KFC franchisee in Germany by revenue.

Strategic rollouts and growth investments

Management highlighted a national rollout of the Kwench beverage platform in Australia, targeting roughly 80% of sites by April FY27 with around $35 million of capex. Other initiatives include cooker replacements, late-night and breakfast trading trials, and an ambitious German expansion plan of 45–90 additional restaurants by FY30, supported by around $20 million of FY27 capex.

Orderly exit from Taco Bell limits downside

Collins negotiated a structured exit from Taco Bell, with 20 restaurants to be transferred into a joint venture and seven closed in FY26. Trading losses on the transferring restaurants ended from 1 April 2026, and the group booked $1.7 million in one-off closing costs, with management signaling scope for a material gain in FY27 from lease liability changes.

Sustainability and workforce metrics progress

The company reported diverting 22.3% of waste from landfill and upcycling 100% of cooking oil, while food waste fell slightly. It also highlighted extensive food safety checks, charity fundraising and meal donations, alongside a diverse workforce of 22,000 employees from 104 nationalities, a female leadership rate of 46.2% and a 26.9% drop in the injury frequency rate.

Margins pressured by delivery and protein costs

Underlying EBITDA margin slipped by about 34 basis points, even as absolute profits increased, reflecting delivery fee structure changes and value investments. Higher protein costs in Europe contributed to the squeeze, and in Australia restaurant-level EBITDA margin dipped 26 basis points to 21%, underscoring persistent input-cost headwinds.

Early FY27 softness in European trading

Management reported a disappointing start to FY27 in Europe, with overall regional sales below the prior year in the first eight weeks. Germany’s total sales growth benefited from the Bavaria acquisition but same-store sales fell 7.2%, while Netherlands revenue declined 5.2% and same-store sales dropped 7.8%.

Macro drag and event-driven volatility in Europe

The company linked Q4 deceleration and early FY27 weakness in Europe to conflict in the Middle East, higher fuel prices and softer consumer confidence. Underperforming limited-time offers compared with last year’s successful Squid Game campaign and summer heatwaves also disrupted restaurant traffic and compounded the sales pressure.

Avian flu inflates poultry costs

Avian influenza significantly lifted poultry prices in Europe, eroding restaurant percentage margins during FY26. Management expects this cost impact to fade through FY27, but stressed that it was a material headwind in the reported year and a key driver of margin compression.

Non-trading charges weigh on statutory profit

Statutory results absorbed several one-off hits, including a $7.3 million post-tax class action settlement and related costs. Additional non-cash impairments of $4.8 million on earlier impaired European restaurants, $2.7 million on two Australian KFC sites and a $1.4 million wage provision top-up were partly offset by a $1.1 million impairment reversal and minor gains.

Currency volatility and FX risk flagged

FY26 earnings benefited from about $16 million of favorable currency translation, giving a tailwind to reported results. However, management cautioned that FX is expected to be a more negative factor for operating margins in 2026 and that ongoing currency volatility remains a risk to future earnings.

Inflation and regulation pressure labor costs

Labor inflation remains elevated across Collins’ markets, and regulatory changes driving enriched employment conditions are expected to weigh further on margins. Management warned of continued commercial pressure and tougher price and mix dynamics in FY27 as it balances competitiveness with cost recovery.

Guidance corridors reflect operating uncertainty

The company outlined margin guidance corridors around 5.5% for 2026 and a conservative midterm range to accommodate volatility. These settings recognize uncertainties around commodity prices, FX swings and the variability in European trading, signalling a cautious stance on near-term profitability.

Investment-led growth with disciplined guidance

Looking ahead, Collins plans 7–10 new Australian restaurants and around seven in Germany in FY27, alongside a $35 million Kwench rollout and about $20 million of German capex plus $3 million of acceleration spend. The group targets strict capital discipline, high returns on investment, maintaining an investment-grade balance sheet and a progressive dividend policy, while expecting strong cash generation, further net debt reduction and free cash flow above historical averages within a margin corridor of roughly 5.5%.

Collins Foods’ earnings call painted a picture of a business delivering record financial results while proactively tackling margin and European demand challenges. For investors, the key takeaways are resilient core KFC performance, improving balance sheet strength and a disciplined yet ambitious growth plan, tempered by realistic acknowledgment of cost inflation, FX risk and softer early trading in Europe.