Pizza Hut, GrubHub troubles dent Yum profits; shares fall

By Nivedita Balu

(Reuters) - Yum Brands Inc <YUM.N> missed earnings expectations, largely hit by a write down in the value of its investment in delivery company GrubHub <GRUB.N> and warned of sagging sales at its Pizza Hut U.S. chain next year, sending shares down 10% on Wednesday.

Restaurants are aggressively investing in technology and convenience to pull in more diners who enjoy a multitude of options in terms of ordering, delivery and even preparing food at home with ready-to-cook items.

To keep up with the changing trend, Yum bought a stake in GrubHub last year, hoping to boost sales at its KFC and Taco Bell restaurants in the United States.

But diners are now switching to GrubHub's competition, including Uber Inc's <UBER.N> Uber Eats and DoorDash that provide a variety of offers.

This does not help Pizza Hut, which has been streamlining dine-in operations and increasingly relying on delivery in the face of competition from rival pizzeria Domino's Pizza <DPZ.N> and Papa John's <PZZA.O>.

"The Pizza Hut U.S. business... has some unique challenges given the dining state and the conditions of the assets... So that's what they're trying to address by moving to a more modern delivery estate," incoming Chief Executive Officer David Gibbs said.

U.S. sales at established Pizza Hut restaurants declined 3% in the reported quarter, as changes to value offerings and attempts to add more modern delivery systems while restructuring franchisees took a toll on performance, Gibbs said.

Overall same-store sales at Pizza Hut were flat, compared with analysts' estimate of 1.46% growth. KFC rose 3%, also missing expectations.

"They've (Pizza Hut) done a lot of marketing, they've launched a lot of value-priced items... it still doesn't seem to be working," Edward Jones analyst Brian Yarbrough said.

"That was one of the big bull pieces to the story, the big Pizza Hut turnaround... it seems to be falling kind of flat."

Louisville, Kentucky-based Yum earned 80 cents per share in the quarter, excluding one-time items, 14 cents lower than expectations, according to IBES data from Refinitiv.

It recorded a pre-tax investment expense of $60 million related to the change in fair value of its investment in GrubHub, which resulted in a 15-cent impact.

Sales from restaurants open over an year rose 3%, below the estimate of 3.3% rise.

"There is always unfinished business... And this unfinished business is probably most pronounced at Pizza Hut U.S," said Greg Creed, who will be stepping down as Yum's CEO next year.

(Reporting by Nivedita Balu in Bengaluru; Editing by Shinjini Ganguli)