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Why Is Yum (YUM) Up 1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Yum Brands (YUM). Shares have added about 1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Yum due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

YUM! Brands Q1 Earnings & Revenues Beat Estimates

YUM! Brands reported strong first-quarter 2021 results, with earnings and revenues surpassing the Zacks Consensus Estimate. Both the metrics also improved year over year.

Notably, strong digital sales coupled with the company’s capabilities to adjust operations and marketing worldwide helped it amid the challenging scenario. During the first quarter, the company reported digital sales of more than $5 billion.

Earnings and Revenue Discussion

During the first quarter, the company’s adjusted earnings of $1.07 beat the Zacks Consensus Estimate of 85 cents by 25.9%. In the prior-year quarter, the company had reported adjusted earnings of 64 cents.

Total revenues of $1,486 million surpassed the consensus estimate of $1,461 million by 1.7%. The top line also improved 17.7% year over year. The upside can be attributed to increase in company sales along with rise in franchise and property revenues.

Worldwide system sales — excluding foreign currency translation — increased 11% year over year with Taco Bell and KFC increasing 11% and Pizza Hut increasing 7% on a year-over-year basis.

Divisional Performance

YUM! Brands primarily reports results under four divisions — KFC, Pizza Hut, Taco Bell and Habit Burger Grill.

For the first-quarter 2021, revenues from KFC totaled $625 million, up 10% year over year. Comps in the division increased 8% against the year-ago quarter’s 8% decline.

This segment’s operating margin expanded 840 basis points (bps) year over year to 48.1%. The increase was primarily driven by solid comps, unit growth and lower bad debt expenses.

In the quarter under review, KFC Division opened 409 gross new restaurants.

At Pizza Hut, revenues amounted to $251 million, up 7% on a year-over-year basis. Comps increased 12% in the reported quarter, against 11% fall in the prior-year quarter.

The segment’s operating margin expanded 800 bps year over year to 40.7%. The upside was primarily driven by solid same-store sales, lower bad debt expense and lower general and administrative expenses. However, this was partially offset by the negative impact of permanent unit closures in the prior-year.

Meanwhile, Pizza Hut Division opened 172 gross new restaurants during the first quarter.

Taco Bell’s revenues came in at $488 million, up 8% from the year-ago quarter. Comps rose 9% in the reported quarter compared with the year-ago quarter’s growth of 1%. Its operating margin was up 470 bps year over year to 36.4%. It was primarily driven by higher comps growth and lower general and administrative expenses.

Taco Bell recorded 73 gross new restaurants openings during the quarter under review.

Habit Burger sales amounted to $122 million during the first quarter. Comps in the division increased 13% year over year. In the quarter, the company opened six gross new restaurants in the United States and Cambodia.

Other Financial Details

Cash and cash equivalents as of Mar 31, 2021, totaled $561 million compared with $730 million on Dec 31, 2020. Long-term debt at the end of the reported quarter was $10,229 million compared with $10,272 million at 2020-end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Yum has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Yum has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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