Alsea S.A.B. de C.V. (ALSSF), the restaurant behemoth behind prominent brands like Domino's Pizza, Starbucks, and Burger King across Latin America and Europe, has been discreetly implementing a strategic financial tool that appears to have gone largely unnoticed by most analysts: Depreciation. Although it may seem like an obscure accounting concept, a closer examination of Alsea's financial statements reveals that depreciation is playing a pivotal role in enhancing the company's profitability and overall financial strength.

While many investors tend to concentrate on metrics like revenue growth and earnings per share, astute analysts delve deeper into the intricacies of a company's financial statements. In the case of Alsea, its depreciation figures, especially when evaluated in conjunction with its capital expenditures and EBITDA, present a compelling narrative of a company strategically leveraging its assets to optimize returns.

In its latest quarterly report (ending March 31, 2024), Alsea reported a reconciled depreciation of 1,952,803,000 MXN. This figure becomes particularly noteworthy when compared to the company's capital expenditures (CAPEX) for the same period, which amounted to 939,691,000 MXN. The key takeaway? Alsea is essentially generating almost twice the amount in depreciation expense relative to the capital it's reinvesting in its tangible assets.

This disparity is substantial. Depreciation, while classified as a non-cash expense, reflects the gradual decrease in the value of a company's assets over their useful life. A significant depreciation figure, when juxtaposed with CAPEX, can indicate that the company is adeptly deriving value from its existing infrastructure, potentially postponing the need for major capital investments.

This notion is further reinforced by Alsea's robust EBITDA (earnings before interest, taxes, depreciation, and amortization) for the recent quarter, reaching 3,600,248,000 MXN. EBITDA is a fundamental gauge of a company's core operating profitability. Alsea's commendable performance in this domain, coupled with the depreciation-CAPEX divergence, suggests a company skillfully managing its assets to attain maximal returns.

Depreciation vs. Capital Expenditure

The chart below illustrates the relationship between depreciation and capital expenditure for Alsea in the recent quarter. As you can see, depreciation significantly outpaces capital expenditure, indicating efficient asset utilization.

For investors, this raises intriguing possibilities. First and foremost, Alsea's efficient asset deployment could imply sustained profitability in the foreseeable future, even with moderate revenue growth. Additionally, the company's capacity to defer substantial CAPEX could result in augmented free cash flow, granting greater flexibility for shareholder-friendly initiatives such as dividends or share buybacks.

Admittedly, this is merely one facet of the investment thesis, and further analysis is necessary. Nonetheless, the depreciation-CAPEX interplay in Alsea's financials provides a thought-provoking insight, potentially unveiling a strategic advantage that has escaped the attention of many analysts.

"Fun Fact: Alsea holds the distinction of being the largest restaurant operator in Latin America and the third largest Starbucks franchisee globally. Serving millions of customers daily, they energize lives with caffeine and satisfying meals across two continents."