One Tweak Dunkin’ Brands Should Really Consider in 2019

Originally published by The Motley Fool.

Dunkin’ Brands Group (NASDAQ:DNKN) has entered 2019 in reasonably good shape, as the company’s shares managed to finish flat last year, avoiding the share price losses of many of its publicly traded competitors. Prospects are generally bright for the doughnut and beverage giant, as management expects current-year sales to be enhanced by a 2018 year-end upgrade of the company’s coffee offerings.

But what’s a new year in the equities markets without a little armchair criticism from detached observers? If I could choose one item to harp on in 2019 — and I suppose I just did — it would be Dunkin’ Brands’ capital structure, which is weighted too heavily toward debt for my liking.

Leverage galore on the balance sheet

Image Source: Dunkin' Brands

Image Source: Dunkin’ Brands

Those who hold shares of DNKN are probably already aware that the Dunkin’ financial model allows for copious amounts of debt on its balance sheet. Since going public in 2011, the company has used regular debt offerings to raise cash, which is then returned to shareholders via share repurchases.

These repurchases typically occur when Dunkin’ refinances its debt. Management tends to utilize borrowing power created by increased earnings to offer new debt in excess of required refinancing levels.

This was the case in the company’s latest major refinancing in November 2017. Dunkin’ issued $1.4 billion of senior fixed-rate notes and used part of the proceeds to retire $731.3 million in older notes, while returning $650 million to investors in February 2018 via share repurchases.

This debt-financed share repurchase activity fits within the Dunkin’ corporate philosophy and business model. Dunkin’ Brands operates as a nearly 100% franchised operation — it runs very few of its own locations.

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Ramen Noodles and Stock Investing

Originally published by The Motley Fool.

Package of "Top Ramen" chili flavor instant ramen with No Added MSG and Vegetarian labels.

Image Source: Nissin Foods USA.

You can be sure that the economic tides have truly shifted within an industry when customers begin to demand of commodity products the qualities they once sought out only in high-end goods.

Last week, in a bid to appeal to consumers’ demands for “clean label” foods, Nissin Foods USA announced that it’s updating the recipe of its iconic Top Ramen line of instant noodles to reflect the three changes most requested by customers. The company told Food Navigator-USA that it’s reducing sodium across its packaged noodles by 15%, eliminating added MSG (beyond the naturally occurring glutamate found in its other ingredients), and dispensing with artificial flavors.

As a lifelong fan of instant ramen noodles, I for one will be curious to see how Nissin maintains the umami quotient in its flavor packets without the aid of monosodium glutamate, an ingredient which, though never proven to have harmful effects, nonetheless has faced much more skepticism in the West than in Asia, where it was

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Eleven Words of Accountingspeak that Changed My Career

“Is she tight?”

For some reason, in the fatigue of a late spring morning after a grueling tax season, my mind hung on the word, which is, among other things, slang for “tipsy.” The question inexplicably summoned up the image of a renegade ship from one of those half-forgotten childhood adventure novels, complete with pirates in a scramble up the rigging, cursing mightily as they trimmed the sails in a fierce wind.

“Yes, sir, she’s tight.”

Henry, one of the partners in the staid, decades-old CPA firm where I worked, was of course referring to the audit, in the form of two bulging, string-bound manila folders that I had just placed on his desk for review. This was the early 2000s, in the twilight of paper-based audits, before everything went electronic. I was a junior auditor in my third year, and had recently graduated from working on senior staff members’ audits to heading up my own very small ones.

I knew what “tight” meant. It meant that you had cleaned up all the loose ends in your field work, that your numerical schedules footed (summed) perfectly, that you had run a well thought out set of analytical procedures to uncover any glaring signs of fraud or incompetence. It meant a thousand small things. But it was also related to a more mysterious question Henry often posed, which true to form on this morning immediately followed:

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