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Yum Brands Posts 3rd-Quarter Earnings Beat

GuruFocus.com
·3 min read

- By Mayank Marwah

Yum Brands Inc. (NYSE:YUM) released its third-quarter financial results before the market opened on Oct. 29. The company's top and bottom lines surpassed analysts' expectations despite weak same-store sales.

Brief summary of the quarter

The restaurant operator, which owns the Taco Bell, KFC and Pizza Hut brands, reported third-quarter adjusted earnings of $1.01 per share, which exceeded analysts' estimates of 80 cents. Revenue stood at $1.45 billion, which was up 8% year over year and marginally surpassed expectations of $1.42 billion.


Reflecting on the quarter, CEO David Gibbs said:


"Third-quarter results were encouraging, demonstrating the resilience of the Yum! portfolio as Yum! generated year-over-year core operating profit growth, continued to reopen temporarily closed restaurants and achieved global same-store sales growth of approximately flat, in aggregate, for our open store base."



He also commented on how digital sales made up for the losses from physical stores:


"For the second consecutive quarter, digital sales increased by more than $1 billion over the prior year and set a single quarter record of $4 billion.Our employees, franchisees and restaurant team members continued to adapt to this year's ever-changing environment while also accelerating progress on our digital and technology journey."



On the global front, the company recorded a comps decline of 2% as it had to shut down many of its restaurants due to the coronavirus pandemic.

Segment details

KFC, the company's largest brand, recorded a 4% decline in same-store sales from the year-ago quarter. However, the operating margin expanded 2.9 percentage points to 47.2% due to international franchise bad debt recoveries. The segment posted 9% growth in systemwide sales in the U.S. In China, however, systemwide sales were down 1%, barring currency translations.

Pizza Hut's quarterly comparable store sales fell 3%. The operating margin inched up 0.7 percentage points to 36.7% as lower comps were more than offset by U.S. franchise bad debt recoveries. The segment saw systemwide sales growth of 3% in the U.S., while in China, the metric declined 6%.

Taco Bell reported a 3% increase in same-store sales worldwide. The sector's operating margin increased 4.3 percentage points to 37.2%, driven by lower general and administrative costs as well as franchise and property expenses. The given metric was also aided by higher international comps.

Shares dipped less than 1% in premarket trading following the earnings announcement.

Yum sells Grubhub shares, adds aggregator partnerships

During the third quarter, Yum sold 2.8 million Grubhub shares valued at $206 million. The company had purchased these shares back in 2018 for $200 million.

The company expanded delivery to 35,000 restaurants during the quarter through aggregator partnerships. Yum is focusing more on multiple partnerships rather than single partnerships as the former allows customers to order from whichever channel they prefer.

Guidance

Yum did not issue guidance figures for earnings and revenue given the uncertainty around the Covid-19 pandemic.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.