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Yum Brands Records Disappointing Earnings and Revenue, Strong Comps

- By Mayank Marwah

Yum Brands Inc. (YUM) reported its fourth-quarter financial results before the opening bell on Feb. 7. The company's top and bottom line underperformed analysts' expectations despite strong same-store sales results.

Key metrics

The restaurant operator, which owns the Taco Bell, KFC and Pizza Hut brands, reported fourth-quarter earnings per share of 40 cents, which missed analysts' estimates of 97 cents. Revenue stood at $1.56 billion, down 1.3% on a year-over-year basis due to the company's refranchising initiatives.

On the global front, the company recorded comps growth of 3% for the quarter.

As of Dec. 31, Yum Brands had $292 million in cash and cash equivalents. Long-term debt amounted to $9.7 billion.

Segment details

KFC, the company's largest brand, witnessed 3% revenue growth, beating forecasts of 2.8% growth. The brand's same-store sales inched up 3% from the year-ago quarter. Given the impressive comps growth, the division's operating margin rose to 37.2%, which was only partially offset by lower advertisement and other franchise service revenue.

Pizza Hut's revenue was $275 million in the reported quarter, up 18% year over year. Comps remained flat from the prior-year quarter. The operating margin fell 5.7% to 33.1%.

Taco Bell's revenue amounted to $597 million, which reflected 12% sales growth. Comps increased 6%. In contrast, the sector's operating profit plunged 170 basis points to 31.9% on a year-over-year basis.

In a statement, CEO Greg said he is "very proud" of what Yum has accomplished in the two years since announcing its transformation.

"Focus on our four growth drivers, increased collaboration and a new mindset are fueling strong results," he said. "Combined across our brands and led by over 2,000 world-class franchisees, we opened a record 8 gross new restaurants per day across the globe in 2018. As we move into 2019, we will continue to pursue even more growth, leverage our unprecedented scale, and maximize value for all Yum stakeholders."

Grubhub to deliver Taco Bell's food

After forming a partnership with Grubhub (GRUB) last year, Yum's Taco Bell announced on Thursday it is now offering nationwide delivery via the online ordering app. It will also withhold delivery charges for a limited time, providing the customer orders at least $12 worth of food.

In a statement, Julie Felss Masino, president of Taco Bell North America, expressed her excitement for the deal.

"We are thrilled because our expanded Grubhub delivery access for our Taco Bell customers will help satisfy their cravings with the delicious Taco Bell they already know and love, whenever, wherever and however they want it," she said.

Taco Bell witnessed some solid franchisee profitabilty in the fourth quarter. The company remains optimistic, saying Taco Bell is well on track to achieve remarkable sales this year with customer traffic on the rise.

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

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This article first appeared on GuruFocus.