A month has gone by since the last earnings report for Yum Brands (YUM). Shares have added about 8.1% in that time frame, underperforming 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 Q3 Earnings Lag Estimates, Revenues Top
YUM! Brands reported mixed third-quarter 2022 results, with earnings missing the Zacks Consensus Estimate and revenues beating the same. The top line rose year over year, while the bottom line declined on a year-over-year basis.
During the third quarter, the company reported resilient global business backed by solid demand and unit development initiatives. Also, it reported growth in its digital business fueled by the solid adoption of its global platforms. During the quarter, the company reported digital sales of more than $6 billion.
Earnings and Revenue Discussion
In third-quarter 2022, the company's adjusted earnings per share (EPS) of $1.09 missed the Zacks Consensus Estimate of $1.14. In the prior-year quarter, the company reported adjusted EPS of $1.22.
Quarterly revenues of $1,640 million beat the consensus mark of $1,638 million. Also, the top line increased 2.1% year over year. The upside can be attributed to an increase in franchise and property revenues.
Worldwide system sales — excluding foreign currency translation — increased 7% year over year, with Taco Bell (rising 9% year over year), KFC (8%) and Pizza Hut (4%).
YUM! Brands primarily announces results under four divisions — KFC, Pizza Hut, Taco Bell and Habit Burger Grill.
For third-quarter 2022, revenues from KFC totaled $704 million, up 1.7% year over year. Comps in the division increased 7% year over year compared with 6% growth reported in the prior-year quarter.
The segment's operating margin declined 200 basis points (bps) year over year to 43.4%. In the quarter under review, KFC Division opened 485 gross new restaurants.
At Pizza Hut, revenues amounted to $237 million, down 4% year over year. Comps in the quarter increased 1% year over year compared with 4% growth reported in the prior-year quarter.
The segment's operating margin contracted 160 bps year over year to 39%. Pizza Hut Division opened 392 gross new restaurants in the first quarter.
Taco Bell's revenues were $568 million, up 6.4% from the year-ago quarter's levels. Comps in the segment increased 6% year over year compared with a 5% growth reported in the year-ago quarter. Its operating margin increased 130 bps year over year to 35.9%.
Taco Bell opened 98 gross new restaurants in the quarter under review.
The Habit company sales amounted to $131 million during the third quarter. Comps in the division declined 1% year over year. In the quarter under review, the company opened four gross new restaurants in the United States.
Other Financial Details
As of Sep 30, 2022, cash and cash equivalents totaled $410 million compared with $412 million on Jun 30, 2022. Long-term debt, as of Sep 30, 2022, stood at $11,517 million compared with $11,540 million as of Jun 30, 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
At this time, Yum has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 indicates a downward shift. Notably, Yum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Yum is part of the Zacks Retail - Restaurants industry. Over the past month, Cheesecake Factory (CAKE), a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended September 2022 more than a month ago.
Cheesecake Factory reported revenues of $784 million in the last reported quarter, representing a year-over-year change of +3.9%. EPS of -$0.03 for the same period compares with $0.65 a year ago.
Cheesecake Factory is expected to post earnings of $0.62 per share for the current quarter, representing a year-over-year change of +26.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -12.6%.
Cheesecake Factory has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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