It has been about a month since the last earnings report for Yum Brands (YUM). Shares have lost about 3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Yum due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
YUM! Brands Q1 Earnings Miss, Revenues Top Estimates
YUM! Brands reported mixed first-quarter 2023 results, with earnings missing the Zacks Consensus Estimate but revenues beating the same. The top and the bottom lines increased on a year-over-year basis.
Earnings and Revenue Discussion
In first-quarter 2023, the company's adjusted earnings per share (EPS) came in at $1.06, missing the Zacks Consensus Estimate of $1.14. In the prior-year quarter, the company reported an adjusted EPS of $1.05.
Quarterly revenues of $1,645 million beat the consensus mark of $1,632 million by 0.8%. Also, the top line increased 6.3% year over year. The upside can be attributed to an increase in the revenues of all its operating divisions.
Worldwide system sales — excluding foreign currency translation — increased 11% year over year, with Taco Bell rising 12% year over year, KFC 11% and Pizza Hut 10%.
YUM! Brands primarily announces results under four divisions — KFC, Pizza Hut, Taco Bell and Habit Burger Grill.
For first-quarter 2023, revenues from KFC totaled $687 million compared with $660 million reported in the prior-year quarter. Comps in the division increased 9% year over year compared with 3% growth reported in the previous quarter.
The segment's operating margin increased 30 basis points (bps) year over year to 44.4%. In the quarter under review, the KFC Division opened 385 gross new restaurants in 47 countries.
At Pizza Hut, revenues amounted to $254 million, up 4% year over year. Comps in the quarter increased 7% year over year, on par with the prior-year quarter.
The segment's operating margin declined 90 bps year over year to 41.2%. Pizza Hut Division opened 271 gross new restaurants in 31 countries in the quarter under review.
Taco Bell's revenues were $572 million, up 11% from the year-ago quarter's levels. Comps in the segment increased 8% year over year compared with 5% growth reported in the year-ago quarter. Its operating margin declined 10 bps year over year to 35.6%.
Taco Bell opened 79 gross new restaurants in 16 countries in the quarter under review.
In the first quarter, the Habit Burger Grill division’s revenues amounted to $132 million compared with $126 million reported in the previous quarter. Comps in the division grew 3%, on par with the prior-year quarter. In the quarter under review, the division opened 11 gross new restaurants in the United States and Cambodia.
Other Financial Details
As of Mar 31, 2023, cash and cash equivalents totaled $349 million compared with $367 million at 2022-end. Long-term debt, as of Mar 31, 2023, was $11,349 million compared with $11,453 million as of 2022-end.
The company announced a hike in its quarterly dividend payout. The company raised the quarterly dividend to 60 cents per share (or $2.42 annually) from the previous payout of 57 cents (or $2.28 annually). The hiked dividend was paid out on Mar 10 to shareholders of record as of Feb 22.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Yum has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Yum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Yum belongs to the Zacks Retail - Restaurants industry. Another stock from the same industry, Restaurant Brands (QSR), has gained 6.4% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Restaurant Brands reported revenues of $1.59 billion in the last reported quarter, representing a year-over-year change of +9.6%. EPS of $0.75 for the same period compares with $0.64 a year ago.
For the current quarter, Restaurant Brands is expected to post earnings of $0.75 per share, indicating a change of -8.5% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.9% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Restaurant Brands. Also, the stock has a VGM Score of D.
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