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Yum China (YUMC) Q3 Earnings Top, Revenues Lag Estimates

Yum China Holdings, Inc. YUMC reported mixed third-quarter 2022 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. However, both metrics increased on a year-over-year basis. Following the results, the company’s shares improved 4.5% in the after-hours trading session on Nov 1.

During the quarter under discussion, the company's operations were affected by the coronavirus. Tightened COVID curbs were implemented to counter the same. The measures paved a path for restricted mobility and reduced travel.

In September, nearly 900 stores were temporarily closed or provided only takeaway and delivery services compared with roughly 400 stores on average in July and August. In October, nearly 1,400 stores were either temporarily closed or offered only takeaway and delivery services due to an increase in new infections.

Earnings & Revenue Discussion

During third-quarter 2022, the company reported adjusted diluted earnings per share of 49 cents. The figure surpassed the Zacks Consensus Estimate of 32 cents. In the prior-year quarter, the company had reported adjusted earnings of 22 cents.

Yum China Price, Consensus and EPS Surprise

Yum China Price, Consensus and EPS Surprise
Yum China Price, Consensus and EPS Surprise

Yum China price-consensus-eps-surprise-chart | Yum China Quote

Quarterly revenues of $2,685 million missed the consensus mark of $2,689 million. However, the top line increased 5% on a year-over-year basis. Excluding foreign currency translation, the top line fell 11% year over year.

Total system sales in the reported quarter rose 5% year over year. System sales at KFC and Pizza Hut increased 5% and 7%, respectively. Same-store sales were flat year over year, primarily due to flat comps at KFC and a 2% increase at Pizza Hut.

Operating Highlights

During third-quarter 2022, total costs and expenses totaled $2,369 million compared with $2,376 million reported in the prior-year quarter.

The restaurant margin in the quarter under review was 18.8%, up 660 basis points from the year-ago quarter's levels. The upside was due to cost savings and improving efficiencies.

During the quarter, adjusted operating profit totaled $318 million, up 89% from the year-ago quarter's levels. Adjusted net income amounted to $208 million compared with $96 million reported in the prior-year quarter.

Balance Sheet

As of Sep 30, 2022, cash and cash equivalents amounted to $1,211 million compared with $1,136 million as of Dec 31, 2021. Inventories during the second quarter were $321 million compared with $432 million as of Dec 31, 2021.

During the third quarter, the company repurchased $13 million worth of shares at an average price of $48.05. As of Sep 30, the company had approximately $1.2 billion available for the buyback program.

The company declared a quarterly cash dividend of 12 cents per common share. The dividend will be payable on Dec 20, 2022, to shareholders of record as of Nov 29, 2022.

Unit Development and Other Updates

During third-quarter 2022, Yum China opened 403 gross new restaurants, driven by the development of the KFC and Pizza Hut brands. As of Jun 30, the company's total restaurant count was 12,409.

During the quarter under review, delivery accounted for nearly 38% of KFC and Pizza Hut's company sales, up nearly four percentage points from the prior-year quarter's levels.

Digital orders during the quarter contributed 91% to KFC and Pizza Hut's company sales. During the third quarter, KFC and Pizza Hut’s loyalty programs increased to more than 400 million members.

2022 Outlook

In 2022, Yum China continues to anticipate opening approximately 1,000-1,200 new stores. The company expects solid expansion in KFC and Pizza Hut stores. Capital expenditures in 2022 are expected in the range of $800-$1000 million.

Zacks Rank & Key Picks

Yum China currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Retail – Restaurants industry are Potbelly Corporation PBPB, Wingstop Inc. WING and Chipotle Mexican Grill, Inc. CMG.

Potbelly currently sports a Zacks Rank #1 (Strong Buy). PBPB has a trailing four-quarter earnings surprise of 22.2%, on average. Shares of PBPB have declined 20.6% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 17.9% and 101.9%, respectively, from the corresponding year-ago period’s levels.

Wingstop also sports a Zacks Rank #1. WING has a long-term earnings growth rate of 11%. Shares of WING have improved 2.3% in the past year.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.1% and 17.1%, respectively, from the comparable year-ago period’s levels.

Chipotle currently carries a Zacks Rank #2 (Buy). CMG has a trailing four-quarter earnings surprise of 4.1%, on average. The stock has declined 16.4% in the past year.

The Zacks Consensus Estimate for Chipotle’s 2022 sales and EPS suggests growth of 15.2% and 30.7%, respectively, from the corresponding year-ago period’s levels.


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