A month has gone by since the last earnings report for Yum Brands (YUM). Shares have added about 5.1% 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 its most recent earnings report in order to get a better handle on the important drivers.
YUM! Brands Q1 Earnings Meet Estimates, Decline Y/Y
YUM! Brands reported mixed first-quarter 2020 results, wherein earnings were on par with the Zacks Consensus Estimate, while revenues beat the same.
Earnings & Revenues
The company’s adjusted earnings of 64 cents met the Zacks Consensus Estimate. In the prior-year quarter, the company had reported adjusted earnings of 82 cents.
YUM! Brands’ total revenues of $1,263 million rose 0.7% year over year and surpassed the consensus estimate of $1,193 million. The upside can be attributed to increased sales as well as franchise and property revenues, and franchise contributions for advertising and other services.
Worldwide system sales — excluding foreign currency translation — declined 3% year over year, with KFC and Pizza Hut falling 2% and 9%, respectively. However, this was partially offset by 4% growth at Taco Bell.
The company also opened 65 net new units and acquired 276 Habit Burger Grill units, indicating net unit growth of 4%.
For the first quarter of 2020, revenues from KFC totaled $566 million. Notably, it remained on par with the prior-year levels. Comps at this division declined 8% against the year-ago quarter’s growth of 5%.
This segment’s operating margin fell 200 basis points (bps) year over year to 39.7% primarily due to lower same-store sales and high bad debt expenses, partially offset by net new unit growth.
In the quarter under review, KFC Division opened 333 gross new restaurants.
At Pizza Hut, revenues amounted to $235 million, down 3.3% on a year-over-year basis. Comps were down 11% in the reported quarter. Notably, comps were flat in first-quarter 2019.
The segment’s operating margin was down 740 bps year over year to 32.7% owing to lower comps and higher bad debt expenses.
Pizza Hut Division opened 127 gross new restaurants in the first quarter.
Taco Bell’s revenues were $453 million, up 1.8% from the year-ago quarter. Comps rose 1% in the reported quarter compared with the year-ago quarter’s growth of 4%. Its operating margin was up 70 bps year over year to 31.7%. It was primarily driven by lower general and administrative expenses in the quarter.
Taco Bell recorded 55 gross new restaurants openings during the quarter.
Other Financial Details
Cash and cash equivalents as of Mar 31, 2020, totaled $1,154 million compared with $605 million on Dec 31, 2019. Long-term debt at the end of the reported quarter was $11,059 million compared with $10,131 million at 2019-end.
Due to the coronavirus pandemic, the company has suspended its share repurchase programs.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted 16.11% due to these changes.
At this time, Yum has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Yum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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