Good morning and welcome to the Restaurant Brands International fourth quarter 2017 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero. After today's call, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. You will hear a tone to confirm that you're in the queue. To exit the question queue, you may press star then two. All callers will be limited to one question. Please note that today's event is being recorded. I would now like to turn the conference over to Markus Sturm, Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the fourth quarter and full year ended December 31st, 2017. A live broadcast of this call may be accessed through the investor relations webpage at investor.rbi.com, and a recording will be available for replay. Joining me on the call today are Restaurant Brands International's Chief Executive Officer, Daniel Schwartz, Chief Financial Officer, Matt Dunnigan, and Chief Technology and Development Officer, Josh Kobza. The team will be available to answer questions during the Q&A portion of today's call. Today's earnings call contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings. In addition, this earnings call includes non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the press release available on our website. Let's begin with the agenda for today's call.
Daniel will start by discussing highlights for the fourth quarter and full year at Restaurant Brands International and will then review the performance of Tim Hortons, Burger King, and Popeyes Louisiana Kitchen. Josh will then provide an update on development for the year, following which Matt will review our consolidated financial results. Daniel will then share some concluding remarks before opening the call up for Q&A. I'll now turn the call over to Daniel.
Thanks, Markus, and good morning, everyone. Thanks for joining us on today's call. I'd first like to start the call by talking about our leadership team at RBI. As technological developments continue to evolve at a rapid pace, we're taking steps to put an even greater focus on technology here. Josh Kobza, who was previously our Chief Financial Officer since 2013, has taken on the important new role of Chief Technology and Development Officer, where he'll focus on enhancing our guest experience through technological innovation for each of our brands, as well as continuing to lead our restaurant development efforts. Leading Josh as CFO is Matt Dunnigan, who has served as our treasurer since joining the company in 2014.
Matt was a natural successor for the CFO position, having successfully led all of our capital markets activities over the past few years, including our acquisition of Popeyes and our various refinancing transactions. I'm really excited for Josh and Matt in their new roles, and both will be sharing some remarks in a few minutes. Before handing the call over to them, I'd first like to discuss our results for the fourth quarter and for the full year of 2017. I'm pleased to report another year of strong results driven by continued system-wide sales growth for each of our three iconic brands, Tim Hortons, Burger King, and Popeyes. Through the dedication of our franchisees and their teams all around the world, we were able to achieve important milestones this year, including growing annual system-wide sales to over $30 billion and reaching over 24,000 restaurants worldwide.
In 2017, continued top-line growth at each of our brands led to consolidated adjusted EBITDA of $2.146 billion, representing 8.3% organic growth versus the prior year's combined results of RBI, including a full year of Popeyes. Growth at Burger King and Tim Hortons, as well as the inclusion of Popeyes in our results, led to adjusted diluted EPS of $2.10 per share in 2017, up from $1.58 per share in the prior year. Our Tim Hortons business achieved 3% system-wide sales growth for the year, primarily driven by net restaurant growth. We achieved some important initiatives at Tims this year, including launching our mobile app and our espresso-based beverage platform across Canada and the U.S., and opening our first restaurants under our master franchise joint venture partnerships in each of Asia, Europe, and Latin America.
We had a good year at Burger King, where we achieved comparable sales of 3.1%, which, coupled with net restaurant growth of 6.5%, led to system-wide sales growth of 10.1%. We also achieved important initiatives at BK, including continued acceleration of net restaurant growth, the signing of numerous development agreements, and the continued creative promotion of our brand, as recognized through the receipt of several marketing awards, including Creative Marketer of the Year at Cannes Lions. At Popeyes, we made good progress integrating the business after acquiring it earlier in the year. System-wide sales grew by 5.1% for the year, driven by net restaurant growth of 6.1%, partially offset by global comparable sales of -1.5%, resulting from the heightened competitive activity that we saw in the U.S.
We remain confident and excited by the growth prospects for each of our three iconic brands, and we believe our strategy of focusing on franchisee profitability and guest satisfaction will allow us to further grow system-wide sales for each of our brands over the long run. Let's now start by reviewing results for our Tim Hortons business. Full-year adjusted EBITDA for Tims was $1.136 billion, up 4% year-over-year on a constant currency basis, primarily driven by revenue growth. In 2017, our Tims' worldwide comparable sales were relatively flat, driven by Canada comparable sales of 0.2%. Our relatively flat results in Canada reflect a macro-driven comparable sales decline in parts of Western Canada, offset by comparable sales growth in other parts of the country. In the fourth quarter, Canada comparable sales improved on a sequential basis to 0.8%, and we hope to build on that momentum heading into 2018.
Our fourth quarter results in Canada were driven by growth in our coffee category, led by our espresso-based beverage platform, as well as growth in breakfast and baked goods, partially offset by softness in our lunch day part. Our growth in breakfast included the launch of our breakfast steak sandwich and our Simply Sausage offer. Our growth in baked goods in the fourth quarter reflected the success of various offerings, including our fall harvest and our holiday lineups of muffins, donuts, and Timbits. We launched our espresso-based beverage platform across Canada and the U.S. in 2017 and are pleased with the growth in volumes that we've seen throughout the year. We encouraged guests to sample our new espresso-based beverages through a number of initiatives, including product innovation, such as our pumpkin spice latte in the fall and our peppermint mocha latte in the winter.
We're happy with the amount of positive feedback received from guests who did sample these products, many of whom now enjoy our espresso-based beverages on a daily basis. There are many guests who have yet to try these products, and we believe this represents a big opportunity for our business in the long run. We also made progress on the digital front at Tims this year, having launched our new mobile app in Canada and the U.S. It's still early, and our team is dedicated to further improving the app to enhance the overall guest experience that it delivers. Our app's user base continues to grow, and we anticipate leveraging additional strategies aimed at driving further user adoption in the future. The digital channel has been and will continue to be a key focus of ours as we grow the Tims brand.
The dedication and engagement from our restaurant owners and their teams as it relates to supporting the increasingly digital-based customer interactions remains critical to the success of our digital platform. Having now rolled out our espresso-based beverages and our digital app heading into 2018, we'll be largely focused on growing our coffee leadership, our lunch day part, and our digital platform. In the fourth quarter, we held our annual Warm Wishes campaign, where volunteers, including Tim Hortons employees and franchisees, helped spread joy throughout the holiday season by performing good deeds in their local communities. Giving back to local communities, including through campaigns such as Warm Wishes, Camp Day, and Smile Cookie, has always been a distinctive attribute of the Tims brand, and we're proud to continue serving and supporting our local communities. Let's review the results for the Burger King business.
We continued our momentum through the fourth quarter to achieve full year 2017 system-wide sales growth of 10.1%. Our system-wide sales growth was driven both by comparable sales of 3.1% as well as accelerated net restaurant growth of 6.5%. Growth in our top line, combined with effective cost management, resulted in full-year adjusted EBITDA of $903 million, up 10.6% on an organic basis versus the prior year. In the U.S., we further accelerated comparable sales in the fourth quarter to 5.1%, resulting in full-year comparable sales of 2.5%. During the fourth quarter, we maintained a balanced approach to our menu initiatives across price points and products. We continued to innovate around our Bacon King and our Crispy Chicken Sandwich, two platforms that performed particularly well in 2017.
We also had several successful value promotions during the quarter that contributed positively to our results. We believe that maintaining this balanced menu offering to provide our guests with products that they love at great prices will continue to drive further sales growth over the long run. Internationally, we saw strength in many of our large markets in the fourth quarter, including China, Turkey, Spain, Brazil, the U.K., and Russia. Growth in each of these markets was driven by a balance of premium products and limited time offers while also maintaining compelling value offerings. Favorable comparable sales in these markets was partially offset by continued softness in certain other markets, including Australia and Korea. Over the past few years, we've placed a lot of emphasis on our global marketing efforts for the Burger King brand, including through highly creative and often edgy advertising campaigns.
Headlines that these campaigns generate have helped to successfully drive comparable sales. They have also resulted in notable recognition from several third-party agencies. We're honored that this year, the Burger King brand won a prestigious Creative Marketer of the Year award at Cannes Lions, and that several of our advertising campaigns, such as Bullying Jr. and Google Home, won us top recognition from the leading ad industry publications, including Adweek, Business Insider, Marketing Week, AdNews, Ad Age, and several others. Heading into 2018, our franchisees and our marketing teams continue to focus on furthering the global positioning of the Burger King brand, which will help us grow our global market share for many, many years to come.
As we continue to grow the brand around the world, we and our franchisees recognize the importance of also giving back to the communities and to the guests that help us achieve that growth. That's why I'm proud to say that last year, the Burger King McLamore Foundation awarded millions of dollars in scholarships to over 3,000 students and also funded numerous literacy and educational projects all around the world. This has been and will continue to be a big priority for the Burger King brand. Now let's review the results for Popeyes. This year, we grew our system-wide sales by 5.1%, driven by net restaurant growth of 6.1%, partially offset by a comparable sales decrease of 1.5%. The softness in comparable sales for the year was a result of comparable sales of -2.2% in the U.S., offset by strength in some of our international markets.
In the U.S., heightened competitive activity with a particular focus on value discounting continued into the fourth quarter. Though we still have work to do, U.S. comparable sales have improved sequentially in the fourth quarter. We've been testing a number of marketing initiatives in recent months that we believe will help us build on that momentum for improved results this year. Internationally, we saw growth in some of our larger markets, including Canada and Turkey, where a balance of limited time offers and value bundles resonated well with our guests, which was partially offset by some softness in other markets such as Korea. Following the completion of the acquisition of Popeyes in March of 2017, we've made a lot of progress on our efforts to integrate the business.
When combined with system-wide sales growth, these synergies help us achieve Popeyes' full-year adjusted EBITDA of $130 million, which was up 36% organically versus Popeyes' previous fiscal year results. I'd now like to turn the call over to Josh, who in his new capacity as Chief Technology and Development Officer will provide an update on restaurant development for each of our three brands.
Thanks, Daniel. In my former role as CFO, a part of my responsibilities over the past several years involved implementing and supporting new development partnerships, including many of our master franchise arrangements and our master franchise joint ventures. Now in my new role as Chief Technology and Development Officer, in addition to driving technological innovation for our brands, I will continue to oversee our restaurant development efforts. As part of that responsibility, I am pleased to provide an update on our 2017 development results. This year, RBI's total restaurant count increased by 5.8% due to the hard work and dedication of our franchisees across each of our brands to build good-looking restaurants that deliver a great experience to their guests.
This growth reflects notable year-over-year acceleration of net restaurant growth at Burger King, continued strength of Popeyes net restaurant growth in the U.S., and moderate net restaurant growth in Canada for Tim Hortons. At Burger King, we grew net restaurant count year-on-year by 6.5%. Our accelerated development was a product of achieving incremental unit growth in many countries all around the world but was primarily led by some of our higher growth markets, including China, Russia, France, and Brazil. In China, we ended 2017 with over 875 restaurants, up from approximately 650 a year prior. In Russia, we opened our 500th restaurant this year and ended the year with over 520 restaurants in the country, up approximately 100 restaurants year-over-year.
Our partner in France has also made good progress over the past few years, having grown their restaurant footprint to over 200 locations through the development of new restaurants and the conversion of several Quick restaurants. In Brazil, our master franchise partner achieved another year of strong net restaurant growth, ending the year with nearly 700 locations as compared to approximately 600 in the prior year. The pace at which partners such as these are opening restaurants around the world highlights the strength and scale potential of our master franchise development model. To further accelerate that growth all around the world, we set up a number of new partnerships for Burger King in 2017, including in Sub-Saharan Africa, Japan, Taiwan, the United Kingdom, and most recently, in the Netherlands in the beginning of 2018.
Each of the markets has existing Burger King restaurants, but we believe the markets are meaningfully under-penetrated with significant potential for growth. We also added a net of 70 additional Burger King restaurants in the U.S. in 2017. We believe that accelerated growth in the U.S. is a testament to the meaningfully improved franchisee economics resulting from years of increased average revenues per store. We hope to further accelerate our U.S. restaurant development heading into 2018 and beyond. Popeyes restaurant count grew 6.1% year-over-year, primarily driven by growth in the U.S., where we opened nearly 120 net new restaurants, as well as continued growth in both Canada and Turkey. In 2017, we signed a number of new agreements in the U.S. with both existing and new partners to further expand the Popeyes footprint throughout the country.
We continue to receive significant interest from various partners to grow the Popeyes brand across the U.S., which highlights the strength of the brand's unit economics and growth potential. This year, we also opened our first Popeyes in South Africa, a natural market for the brand, given the fit of our Louisiana-style flavor profile with local tastes. We continue to be encouraged by the level of interest it received from both existing and prospective partners who are excited by the potential opportunity to bring Popeyes to international markets in a big way. At Tims, 2017 net restaurant growth was 2.9%. In Canada, we had a tempered pace of growth in 2017, having opened approximately 110 net restaurants after choosing to be more selective in our development approach and in site selection .
In the U.S., as mentioned in our remarks last quarter, we've been developing at a slower pace than originally anticipated, but we remain focused on the U.S. as a key priority market with significant long-term potential. We continue to work closely with and support our U.S. partners to build out the brand in their respective markets for many years to come. Internationally, we opened our first Tim Hortons restaurants in each of Asia, Europe, and Latin America this year, resulting from the master franchise joint ventures we set up over the past two years. In the U.K. and the Philippines, we opened 13 and 10 restaurants in 2017 respectively, and we also opened our first two restaurants in each of Spain and Mexico. These international stores continue to perform well, and our partners have been building robust pipelines for additional openings in 2018 and beyond.
We continue to work closely with these partners to accelerate development in these international markets over time. I'll now turn the call over to Matt to provide an update on our financial results and capital allocation.
Thanks, Josh. It's a pleasure to join everyone on today's call, and I'm excited and honored by the opportunity to support the business in this new capacity as CFO. Turning to the financial results, the combination of growth in our top line for Tim Hortons and Burger King and inclusion of Popeyes in our results resulted in 2017 adjusted EBITDA of $2,146,000,000, up 8.3% on an organic basis versus prior year combined results, including a full year of Popeyes in both periods. These results reflect a fourth quarter adjusted EBITDA of $606 million, up 10.8% on an organic basis versus prior year combined results, including Popeyes. Adjusted EBITDA growth, combined with a favorable tax rate resulting from the taxable benefit of stock option exercises, led to adjusted net income of just over $1 billion for 2017 versus $744 million in 2016.
Adjusted diluted EPS for the year was $2.10 per share, up versus $1.58 per share in the prior year. As a reminder, neither adjusted net income nor adjusted diluted EPS include Popeyes for the first quarter of 2017 or for the full year of 2016, as the business was acquired in March of 2017. We wanted to provide a brief update with regard to recently enacted U.S. tax legislation, which we refer to as the Tax Act. Though we are a Canadian company, we have U.S. subsidiaries subject to U.S. federal income taxation, therefore the Tax Act impacted our results in 2017 and is expected to continue to impact our results in future periods. Looking ahead to 2018, based on our current interpretation of the Tax Act, we anticipate our 2018 adjusted effective income tax rate to be in the low 20% range with continued quarter-to-quarter volatility.
While we have not historically provided forward-looking guidance, we wanted to be helpful and clarify the anticipated impact the recent changes may have on our business. We wish to clarify that we do not intend to provide prospective updates on this estimated tax rate. It is also important to note that certain provisions of the Tax Act are complex and are expected to be clarified by future regulatory guidance, which could further impact our income tax rate. Our fourth quarter and full year 2017 net income attributable to common shareholders includes one-time benefits related to the implementation of the Tax Act, as well as the redemption of our preferred shares, while our adjusted net income excludes these one-time benefits. More details pertaining to these one-time benefits can be found in our press release and in our Form 10-K.
We also wanted to speak briefly on the implementation of new revenue recognition accounting standards that will commence starting the first quarter of 2018. As will be disclosed in our Form 10-K, we will be applying a transition method to the new standards, under which a retained earnings adjustment will be recorded at the beginning of 2018 to reflect the cumulative impact of transitioning to the new standard as if the standard had always been in place. Under this transition method, we will not be restating results prior to 2018 to reflect the new accounting standards. We will be providing disclosures in 2018 that quantify the impacts the new standard has on our 2018 results, including our adjusted EBITDA and adjusted net income to allow for year-over-year comparability.
The two largest impacts of these new standards pertain to the recognition of upfront franchise fees and of advertising funds that we manage on behalf of franchisees. Under current accounting standards, we recognize franchise fees when we have performed all material obligations and services, which generally occurs when franchise restaurants open. Under the new accounting standards, we will defer initial and renewal franchise fees and recognize this revenue over the term of the related franchise agreement. Under current accounting standards, we do not reflect advertising fund contributions from franchisees or advertising fund expenditures in our statement of operations. To the extent that contributions received exceed advertising expenditures, the excess contributions are treated as a deferred liability. To the extent that advertising expenditures exceed advertising fund contributions, the difference is recorded as a temporary receivable from the fund.
Under the new accounting standards, advertising fund contributions from franchisees and advertising fund expenditures will be reported on a gross basis in our statement of operations, and the timing of certain advertising fund revenues and expenses may result in some quarter-to-quarter fluctuations. It is important to note that adjusted EBITDA is a metric used by us to measure the operating performance of our business as it excludes several non-cash and other specifically identified items. The new accounting standards will have no impact on the amount or timing of our cash flows. However, they will have an impact on our consolidated statement of operations, including adjusted EBITDA. Consequently, under the new standards, we believe that adjusted EBITDA will less closely correspond to the underlying cash flows of our business.
Given the non-cash nature of these changes, we do not intend to provide forward-looking estimates as to the potential impact that the new standards will have on our consolidated statement of operations. Let's now discuss our cash generation and capital allocation for the year. We generated approximately $1.4 billion in free cash flow in 2017, calculated as cash flows from operating activities of approximately $1.4 billion, less cash flows from investing activities of $858 million, plus an add back for net cash invested to acquire Popeyes of approximately $1.6 billion, less the net cash settlement of our prior Canadian dollar cross currency swap of $763 million. In the fourth quarter, we completed the previously announced redemption of our preferred shares.
See to be a really big long-term opportunity. I think the last point I would make on Tims development is really what we're seeing in international. We've said since we got involved with Tims that the really big opportunity with Tims is to make it a truly global brand. You saw us start to do that this year, opening up a lot of restaurants really across a number of continents around the globe, opening up in the U.K. and the Philippines and Spain and Mexico. We've been really pleased with the reception that the brand's had in all of those countries and very pleased with how our partners in those countries have been able to realize the execution of the brand in those markets. I think that's really encouraging as well, and we look forward to building upon that success.
We're pretty excited about where we can go with development at Tim's in 2018 and for many years beyond that.
Our next question comes from Patricia Baker of Scotiabank. Please go ahead.
Good morning, everyone. Another question on Tim's. Can you talk about the Canadian performance and you referenced where the strength was, but also noted that you have softness in the lunch day part. Can you talk about your thoughts on why that is, what you're going to do about it, and what the issues are?
Hi, it's Daniel. Thanks for the question. As we said, we have seen some sequential improvement in the comparable sales of Tim's in Canada this quarter. We were up just under 1%, although we did still see some softness in the western part of the country, in part due to the macroeconomic conditions. As we said, we're continuing to focus our growth around building our espresso-based beverage platform. We've been innovating around that platform with the pumpkin spice latte and the peppermint mocha. As it pertains to the lunch day part, we do see an opportunity to build on an already strong lunch business that we have in Canada. We launched a new great product in the fourth quarter in our artisan grilled cheese sandwich, and if you haven't seen, we've already launched another strong product in the first quarter here, the new turkey bacon club sandwich.
We're continuing to innovate and build around that already strong lunch day part. As we kind of look out heading into 2018, that'll be largely focused on continuing to drive the business forward and growing our coffee leadership, building on our espresso-based beverages, continuing to drive lunch sales and in our digital platform, having now rolled out our mobile order and prepay app.
Our next question comes from Dennis Geiger of UBS. Please go ahead.
Great. Thank you. Would you be able to comment at all on the minimum wage situation in Canada, in light of the media attention? Anything you could share on whether the business has seen any kind of impact, then I guess beyond that, how the system is thinking about offsetting those labor headwinds? Thanks.
Yeah. Thanks. It's Daniel again. I think what we could say is, while the pace of the change is challenging for all business owners, as we've said in the past, this really applies to all of the brands and all the geographies that we operate in, this is a business that faces cost inflation from year to year. Some years, labor inflation will be higher. Other years, commodities and utilities will be higher. It's our primary objective together with our franchise partners around the world to drive sales growth in order to offset any cost inflations that we may face from year to year. As it pertains to the Tim's brand, the business is strong, the brand is healthy, and we're working closely with our restaurant owners to drive sales for many years to come to offset any cost inflation that we may face.
Our next question comes from Mark Petrie of CIBC. Please go ahead.
Hey, good morning. Thanks for all the comments on Tims. I wanted to ask about Popeyes in the U.S. and if you could just comment about the competitive activity there, your innovation as it relates to returning to a positive comp momentum, then any comment you could offer just in terms of the cost-cutting progress and sort of are we at run rate SG&A for that business?
Yeah. It's Daniel. Thanks for the question. As we mentioned in prior quarters, we have continued to see a heightened competitive activity in the U.S., although, we've worked very closely with our franchise owners to refine the marketing calendars as we enter 2018. We're focused on providing a great balanced menu that caters to our guests in all respects to provide good value and good innovation. We continue to be quite encouraged by the outlook for the Popeyes business as the pace of development has accelerated this most recent year. Unit economics continue to be quite strong. We're confident in our ability to drive sales growth and profitability growth for our restaurant owners for the long run.
As we had mentioned in the past, we had acquired the brand earlier last year. We've already integrated Popeyes into Restaurant Brands International and look forward to building the brand for many years to come.
Our next question comes from Brian Bittner of Oppenheimer. Please go ahead.
Thanks. Good morning. I got two questions. Just first on the taxes, thanks for the help on that. Does the low 20s rate going forward, does that assume any strategic shift in the capital structure with your U.S. domiciled debt? Does it assume any of the interest associated with that debt is not tax-deductible? That's the first question. Second question is just on G&A in general. We saw a big reversal in the G&A trends this quarter relative to the last several quarters. Can you just explain what happened this quarter so we can understand how to think about that part of the P&L going forward? Thanks, guys.
Yeah. Hi, this is Matt. Thanks for the question. First on the tax, as we mentioned in prepared remarks, based on our current interpretation of the Tax Act, we anticipate the 2018 adjusted effective income tax rate to be in the low 20% range, with continued quarter-to-quarter volatility. As we move forward, we expect certain provisions of the Tax Act to be clarified, and which could have further impacts on this rate. As it relates to the composition of the tax rate, there's various puts and takes and assumptions which may change from quarter to quarter. These will evolve as the tax reform provisions become clarified. On the second part of your question related to SG&A, we'll just take a second here and kind of walk through some of the different movements across three brands.
Within Tims, as mentioned in prior quarters, we continue to grow Tims all around the world, and we may see G&A growth, in certain areas as we spend on initiatives to support that growth, such as international expansion, and digital. We also allocated time and resources to meeting with our franchisees all across Canada, in this past year to discuss and address the agenda that we're putting together moving forward. On the BK side, though we've owned the BK business for seven years now, we continue to put an emphasis on effective cost management through ZBB, and we're always looking for opportunities, for efficiencies within the business. I would say that in Q4 and the full-year numbers for 2017, we see the impact of synergies that were realized through leveraging shared services across the three brands now with the ownership of Popeyes.
Also some benefit from performance-based compensation in the year, which is driving benefits versus prior periods. Lastly, in Popeyes, we've made good progress, as Dan mentioned, integrating Popeyes throughout the year. We've seen G&A savings as we've integrated our back-office functions and implemented ZBB. We look forward to continuing to integrate that business. However, much of the straightforward cost benefits related to the integration of the brands have been achieved.
Our next question comes from Andrew Charles of Cowen. Please go ahead.
Great, thank you. Two on Tims, if I may. Tim Hortons gross margins were flat for the second consecutive quarter, wondering what you're seeing within this line. Obviously, we were accustomed to significant expansion over the last two and a half years. Was the restraint coming from rising input costs or changes in the pricing structure to franchisees? Secondly, what do you need to see before you would allow the Tim Hortons Canadian franchisees to take price in 2018 given the cost pressures there? Thanks.
Hi, it's Matt. Thanks for the question. On the supply chain side, I would say that the margins were flat, and we're happy with the levels that they're at.
Yeah, thanks Matt. On the second question, as has always been the case, we take price from time to time, and we look at a variety of factors and input factors to consider the pace and amount of price we take, and that hasn't changed.
Our next question comes from Gregory Francfort of Bank of America. Please go ahead.
Hey, I had two questions, one of which is really just a clarification. On the tax rate in the low twenties, are you assuming a stock compensation benefit there? Because I think that was around four and a half points this year, it would materially change the number that you're suggesting if it's in that number or not. I guess the second question is on the dividend. A very big shift in, I guess, your policy of taking basically a $0.01 a quarter to now basically doubling the amount of capital you're returning to shareholders. What went through that process and, I guess, how were you thinking about the level to which you went and sort of how you came up with that change?
Yeah, hi. This is Matt. Thanks for the questions. First on the tax rate, as we mentioned, based on our current interpretation of the Tax Act, we expect to be in the low 20% range for 2018. There's various puts and takes and assumptions involved in that calculation, which may change over time, and we also expect that certain aspects of the Tax Act will be clarified over time, and could have an impact on that rate. As it relates to the dividend and capital allocation, we're committed to maintaining a balanced approach to capital allocation, which I think we've continued to demonstrate over time through debt repayment, continued de-levering, share repurchases, increasing our dividends as our earnings grow, and continued investment in our brands.
During the fourth quarter, one of the key highlights here was in addition to some of the refinancing activities earlier in the year, we redeemed our preferred shares. As a result of redeeming the preferred shares, we've shifted from a model of distributing preferred and common dividends to one of focusing on a common dividend. As we mentioned in the prepared remarks, as we think about capital allocation, we looked at our distributions. The target that we've set up here for 2018 of $1.80 per share is relatively comparable to the total capital that we returned in 2017 when you take into account the common dividends, preferred dividends, and share repurchases.
Our next question comes from Will Slabaugh of Stephens Inc. Please go ahead.
Yeah, thank you. Just one clarification, then a question, if I could. Following up just on the dividend question, does that signal anything regarding the timing or size of any future acquisition, number one? Number two, the real question is on Burger King, which we haven't touched on yet. You're clearly accelerating that business, especially on a two-year basis. At the same time, it seems the QSR world is getting more competitive, and your biggest competitors are actually getting more aggressive. Can you talk about what worked in the current quarter for you there, in particular, and especially on the value side, just given the aggressiveness of value, and as we look forward, if you're shifting anything as your competitors are getting more aggressive?
Yeah. Hi. Thanks for the question. It's Daniel. With respect to the first question, as Matt said, we always take a look at our capital allocation holistically and have historically maintained a balanced approach. We believe that even after these changes, that we'll still be able to continue to delever the business going forward. Having said that, we are focused on driving organic growth at our three brands for many years to come. We do believe that we will continue to be able to delever at a healthy pace perspectively. With respect to Burger King, I'm pleased to say we've been disciplined to stick to the plan that we set in motion over seven years ago, where together with our restaurant owners in the U.S., we invested in renovating the system, improved our marketing, launched good menu offerings, improved our operations.
The combination of all that allowed us to significantly grow the sales per restaurant and profitability per restaurant for our restaurant owners for many years. The QSR industry has been competitive, and it is competitive. It will be competitive, and that hasn't changed our approach, which has been that of being balanced with respect to value and premium offerings. You'll see us continuing with this balanced approach going forward. We've said in the past that it's not a straight line, but we are confident that over the long run, if we stick to our plans and we work hard with our strong franchise partners, we'll be able to grow the size of the brand and the business.
Our next question comes from Karen Holthouse of Goldman Sachs. Please go ahead.
Hi. Thanks for taking the question. Could you just comment high level, now that we're past the end of 2017, on trends on franchise profitability or EBITDA or cash flow, whatever metric you would focus on? Thanks.
Yeah. Hi, Karen. It's Daniel. What I'd say that generally speaking, the trends would be consistent with those of the same-store sales in the long run. We've talked in the past that our goals here are to drive franchise owner profitability and drive guest satisfaction, those goals haven't changed. In general, those profitability trends tend to move in line with the direction of the same-store sales, which is why we're always very focused on driving sales growth together with our franchise partners.
Our next question comes from Josh Long of Piper Jaffray. Please go ahead.
Great. Thank you for taking the question. On the Popeyes side of the business, with the integration ongoing, was curious how you think about the appetite for global growth of that brand among your franchisees and what you're doing in order to set that up for accelerated growth, particularly internationally as we go forward.
Hey, Josh. Thanks for the question. It's Josh. As I mentioned a little bit earlier, we made a bunch of progress this year on growth in the U.S., I think both in terms of the actual restaurant openings and in terms of setting up a lot of new development agreements. I think one of our big priorities for 2018 is going to be doing the same thing in a lot of new international markets. I've talked about a number of times, the thing that maybe got us the most excited about Popeyes from the beginning was the ability to grow the brand all around the world and so many of these global markets, and we'll be spending a lot of time
Working on setting up those new partnerships in 2018 and look forward to hopefully bringing you guys a lot of news about where we're going to take Popeyes next over the course of the year.
Our next question comes from Jason West of Credit Suisse. Please go ahead.
Yeah, thank you. Can you hear me?
Yeah.
Yep. Yeah, just a couple of questions. One, Daniel, you made the comment a couple of times about continuing to delever the balance sheet, and obviously you guys just raised the dividend significantly. Just wondering if you're changing your view at all about the capital structure and how levered you want to be, going forward, particularly, with interest rates maybe ticking up here a bit. Secondly, as we're going to have some accounting changes and things this year, I think people increasingly are going to focus on free cash flow in the business. Is there anything going on going forward in terms of maybe the cash taxes or CapEx investments or supply chain investments or anything like that we should be aware of, as we're trying to tighten up our free cash flow forecast? Thanks.
Yeah. Hi, it's Daniel. Yeah, I did mention that we will continue to delever. That's been a priority of ours in the past. We've never had a leverage target, as you know. When we look at the capital allocation outlook for the year, as Matt had mentioned, it's largely consistent with where we've been in the past or at least last year, if you look at the sum of the common preferred and PEU buyback or share buyback. As we look out to the future, we don't see any major impacts of some of those areas that you'd mentioned, and we'll continue to delever and focus on growing the size of our business and our brands all around the world.
Our next question comes from Peter Sklar of BMO Capital Markets. Please go ahead.
I just have a question on the Tim Hortons comp. While the comp in Canada was, as you mentioned, 0.8%, your global comp was somewhat less, suggesting you did have a negative comp in the U.S. Can you just talk a little bit about what's going on in terms of the U.S. comps and what you think the issues are and what steps you're taking to improve the comp?
Yeah, thanks. As Josh had mentioned, as an answer to one of the earlier questions, we have seen some softer sales in the U.S. recently with a very competitive QSR environment. We launched our espresso-based beverages later in the year, actually end of Q3 into Q4, which we believe will be a key platform for growth for the brand. As Josh mentioned, we are committed to growing this brand for the long run in the U.S. together with our restaurant owners there.
Thank you.
Our next question comes from Matt McGinley of Evercore ISI. Please go ahead.
Thanks. I have a follow-up on the tax rate, and I can appreciate the complexity in trying to predict that rate.
That rate.
When you give the low 20s, what does that ultimately compare to? Is that comparable to 2016, where you had a low 20s rate? In 2017, you had the noise from the Tax Act and stock-based comp. I guess the question directly is there any increase in the underlying rate, excluding the noise from 2017, in the guidance for that low 20s for 2018?
Yeah. Hi, it's Matt. Thanks for the question. I think, as we mentioned before, based on all the different aspects of the Tax Act and our current understanding of them, we believe that we'll be in the low 20% range for 2018. When we think about putting this into context, I think if you look back over long-term kind of historical trends within the tax rate, this level is relatively comparable.
This concludes our question and answer session. I would like to turn the conference back over to Daniel Schwartz for any closing remarks.
Thank you, everybody, for joining us today. We look forward to updating you next quarter. Thanks a lot.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.