Yum China (YUMC) Stock Down on Q3 Earnings and Revenue Miss
Yum China Holdings, Inc. YUMC reported third-quarter 2023 results, with earnings and revenues missing the Zacks Consensus Estimate after beating in the preceding two quarters. Following the results, YUMC stock declined 8.8% in the after-hour trading session on Oct 31. Consumer demand weakened in late September through October, negatively impacting the company's quarterly results.
Earnings & Revenue Discussion
In third-quarter 2023, the company reported adjusted earnings of 59 cents per share, falling short of the Zacks Consensus Estimate of 66 cents by 10.6%. Yet, the bottom line surged 129% from 49 cents reported a year ago.
Quarterly revenues of $2,914 million lagged the consensus mark of $3,037 million. Nonetheless, the top line rose 9% on a year-over-year basis. Excluding foreign currency translation, revenues increased 15% year over year.
Total system sales grew 15% year over year. System sales at KFC and Pizza Hut jumped 15% and 13% (excluding foreign currency translation), respectively.
Same-store sales gained 4% year over year. The upside was primarily driven by 4% and 2% growth (excluding foreign currency translation) at KFC and Pizza Hut, respectively. Our model predicted the metric to improve 3.1% year over year.
Yum China Price, Consensus and EPS Surprise
Yum China price-consensus-eps-surprise-chart | Yum China Quote
Operating Highlights
In third-quarter 2023, total costs and expenses amounted to $2,591 million, up 9% from $2,369 million in the prior-year quarter. Our model suggested the metric to climb 10.2% year over year.
The restaurant margin was 17% compared with 18.8% a year ago. The downside was primarily due to a lapping of austerity measures as well as a temporary respite in the prior year.
Adjusted operating profit totaled $327 million compared with $318 million a year ago. Adjusted net income amounted to $248 million compared with $208 million in the prior-year quarter.
Balance Sheet
As of Sep 30, cash and cash equivalents were $1,131 million compared with $1,130 million as of Dec 31, 2022. Inventories were $419 million compared with $417 million in the previous quarter.
In the third quarter, YUMC repurchased nearly 2.9 million shares at an average price of $54.91 per share. As of Sep 30, the company had $870 million available for the buyback program.
Management declared a quarterly cash dividend of 13 cents per common share. The dividend will be payable on Dec 19 to shareholders of record as of Nov 28.
Unit Development and Other Updates
In third-quarter 2023, Yum China opened 500 net new stores for developing KFC and Pizza Hut brands. As of Sep 30, the total restaurant count reached 14,102.
In the quarter under review, Yum China’s delivery contributed nearly 35% to KFC and Pizza Hut's company sales.
Digital orders contributed 89% to KFC and Pizza Hut's company sales compared with 90% a year ago. Loyalty programs of KFC and Pizza Hut led to year-over-year growth by increasing to more than 460 million members.
2023 Outlook
Management now expects to open 1,400-1,600 stores, up from the prior estimate of 1,100-1,300. It anticipates solid expansion related to KFC and Pizza Hut stores along with growth of same-store sales. Capital expenditure in 2023 is projected to be $700-$900 million.
Zacks Rank & Key Picks
Yum China carries a Zacks Rank #3 (Hold).
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The Zacks Consensus Estimate for FAT’s 2024 sales and EPS suggests improvements of 36.3% and 29.6%, respectively, from the year-ago levels.
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The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests advancements of 8.5% and 16.2%, respectively, from the prior-year figures.
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