Earnings: CVS beats, KFC parent Yum! Brands tops revenue but misses on profit

Yahoo Finance Live's Julie Hyman and Brian Sozzi discuss fourth quarter earnings for CVS and Yum! Brands.

Video Transcript

JULIE HYMAN: Good morning. On this Wednesday morning, as we see futures get a boost, we're watching earnings here. CVS another of the companies that beat analysts' estimates. The company, as you can see, earnings and revenue coming in ahead of where analysts were expecting here. The company also closed some stores. That led to a charge.

You can see the shares down by about 5% this morning. Pharmacy benefits business is actually CVS's largest segment now, and it rose 8% year over year. Its sales rose 8% year over year. The health insurance unit also had an 8% boost to shares here-- to sales here, excuse me, Brian Sozzi. The shares, though, as I mentioned, are down. It looks like the cash flow forecast is below what analysts have been predicting.

BRIAN SOZZI: Yeah, the Street didn't like that one. I should mention, too, CVS is now the top trending ticker on Yahoo Finance. That is something that does not happen very often, but also reflective of the fact CVS shares really have been on fire, fire, the past year under new CEO, Karen Lynch. The stock ran up 18% over the past three months into these results, seeing some profit taking. Two things I don't like-- one is that reiteration of their forward outlook, $8.10 a share this year to $8.30. Street was at $8.27. Check, done. Market doesn't like it.

Number two, $1.4 billion writedown in the fourth quarter, Julie, related to CVS's plan to close 900 stores over the next three years. Now I can go on for days about this, but what I think a CVS and a lot of other of these drugstore chains are missing here is the real impact to communities when they take out these pharmacies from the city. You know, I have a couple of pharmacies by me closing. It is caused a headache for a lot of people who now need to move their prescriptions to other locations. It's a disaster. It's a pure move to just boost your stock price. It's very unfortunate.

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JULIE HYMAN: There's the opening bell on this Wednesday morning. As we've been talking about, we've got a boost in the futures that looks like it's going to mean a boost for stocks as well. Pretty sizable gain in the major averages here. And one more note on CVS is, it's ironic, of course, that you talk about the boost that they're trying to get from closing stores, but the stock is down, at least today, because of that negative forecast and because of the charge they're taking probably to close those stores.

But we are seeing overall stocks on the rise today, the NASDAQ leading the pack. It's up by about 1.2%. And another company that we are watching this morning as we continue to watch a lot of different food companies and food themes this morning, we are watching Yum Brands as another on the list. And we're going to be talking to an executive from Yum a little bit later on. Those shares are little changed here this morning.

Earnings per share, it looks like, came in a little bit below what analysts had been predicting. Revenue came in a little bit ahead. And comparable sales, which, as we know, is really the main metric for a lot of these companies, beat estimates. Worldwide comps up 5%, Pizza Hut up 3%. KFC particularly strong, seeing a 5% gain, but it was Taco Bell that was also a big standout with an 8% gain in its comp, Sozz.

BRIAN SOZZI: Yeah, looking forward to catching up with Yum Brands CEO David Gibbs in the next hour, but really, that KFC business, I briefly hopped on the Yum Brands earnings call this morning, highlighting strength in their new chicken sandwich.

Apparently, that is helping to drive KFC sales, but by and large, not many red flags from the earnings call per se, but again, I think this business continues to be impacted by wage inflation, worker shortages that are impacting how many hours some of these restaurant locations can stay open, most notably Taco Bell. That business thrives on that late night business when you've had about-- I don't know-- 10 beers, roll up to the drive-thru, and buy-- I don't know-- 15 burritos. They need that business to push them over the line.

JULIE HYMAN: Well, the contrast with Chipotle is pretty clear here, right? Because here, you have operating margins that, pretty much across the board of the different chains, missed estimates. Just to take KFC as an example, its restaurant margins, 16.3%. The estimate was for 17 and 1/2%.

And whereas at a Chipotle, they made it very clear on the call that they are remaining staffed up, that they had, what, I think 19,000 promotions across their stores from people who were there internally, who they're moving up because those folks stayed. They are very clear they want to keep the wages competitive. And they have the pricing power.

Now you go on over to a KFC and a Taco Bell, and again, this is going to be a question for David Briggs, as you talked about. But, you know, do they have that same ability to raise prices and therefore raise wages and therefore keep that Taco Bell staffed at midnight or 2:00 AM or whatever it is, right?

BRIAN SOZZI: Yeah, it's been an ongoing problem. And it's not just Taco Bell, Julie. It's a broader issue throughout the restaurant industry. What it didn't seem to impact-- and this is an interesting fun fact-- Yum Brands highlighting that they opened almost 4,200 restaurants around the world last year. That is a very impressive number, just given everything we are seeing with the pandemic and impacting how restaurants, in fact, open if you can find the labor to do it. That is a very, very large number.

JULIE HYMAN: Yeah, it definitely is.