updated 11/12/2010 8:24:36 AM ET 2010-11-12T13:24:36

The operator of Wendy's and Arby's restaurants lost money in its third quarter, pressured by higher ingredient costs and weak performances at both restaurant chains.

Wendy's/Arby's Group Inc. also lowered its 2010 adjusted earnings outlook on Friday, but boosted its quarterly cash dividend.

Shares fell 15 cents, or 3 percent, to $4.89 in morning trading.

The Atlanta-based company is concentrating on improving performance at both of its brands by coming out with less-expensive menu items and other menu changes. The company plans to launch breakfast at Wendy's locations nationally starting late next year.

Arby's in particular has long been suffering because its sandwiches can cost $5 or more, more expensive than many other fast-food offerings. Diners in the downturn focused on value and price, so they sought out cheaper alternatives.

Arby's is coming out with lower-priced options, such as a Junior deluxe roast beef sandwich and a related $2.99 meal deal. The company is also advertising these offerings so people think about the restaurant differently, CEO Roland Smith said on a conference call.

"It just takes time to build awareness around a concept that Arby's has never had in its 44-year history," he said.

Wendy's/Arby's lost $909,000, or break-even on a per-share basis, for the period ended Oct. 3. That compares with earnings of $14.7 million, or 3 cents per share, last year.

Analysts expected earnings of 4 cents per share, according to Thomson Reuters. These estimates typically remove one-time items.

Revenue fell 5 percent to $861.2 million, missing Wall Street's estimate of $882.6 million.

Systemwide sales at Wendy's restaurants open at least a year in North America dropped 1.7 percent, while Arby's reported a 5.9 percent decline. That is key gauge of performance because it measures results at existing restaurants rather than newly opened ones.

Smith said the quarter was not satisfactory and the company will work to create more high-quality menu items, continue remodeling restaurants and expand overseas.

Wendy's/Arby's will continue its Arby's turnaround efforts as well. Smith said Wendy's/Arby's was encouraged by the performance of the chain's everyday value menu in October. The chain reported a 5.5 percent increase in sales at company-run stores open at least a year.

For Wendy's, the company is focusing on the quality of its food and introducing new products with simple, natural ingredients to appeal to foodies. The chain will debut its natural-cut, sea salted french fries later this month.

It is seeing gains from premium salads introduced in August and is now testing a premium cheeseburger line with thicker burgers, with red onions on a toasted bun. The company expects it to launch next year.

Also late next year, Wendy's will roll out breakfast items nationally, after years of trying to break into the market. Smith said initial results from test markets are encouraging.

Customer losses during the recession are still reverberating, said Joscelyn MacKay, a Morningstar analyst.

"They lost a lot of traffic during the downturn by not having a compelling value menu, and it's really taking a lot more than perhaps the firm anticipated to get them coming back," she said of customers.

She said it was important that Wendy's start offering breakfast, which typically accounts for one-fourth of fast-food business.

Wendy's/Arby's expects full-year adjusted earnings before interest, taxes, depreciation and amortization will come in at the lower end of its prior guidance for an estimated 3 percent to 5 percent decline. The restaurant operator also predicts sales at Wendy's company-run restaurants in North America will fall about 1 percent for the year. It anticipates a decline in that metric for Arby's locations.

But the company lifted its quarterly dividend to 2 cents from 1.5 cents. It will be paid on Dec. 15 to shareholders of record on Dec. 1. Wendy's/Arby's also said it will buy back an additional $170 million in shares and has extended its repurchase program by one year to Jan. 1, 2012.

Wendy's/Arby's has more than 10,000 restaurants in the U.S. and 24 countries and U.S. territories worldwide.


AP Retail Writer Michelle Chapman contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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