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Yum! Brands, Comcast, Merck all beat in Q3 — here’s why

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Yahoo Finance’s Brian Sozzi, Julie Hyman, and Brian Cheung break down what's moving the market this morning.

Video Transcript

JULIE HYMAN: This is Yahoo Finance Live. As we talked about, stocks just opened up a moment ago higher. Let's dig through some more of the earnings numbers you see there. We're going to start with Yum Brands. That company coming out beating analysts' estimates, worldwide comparable sales up 5%. As you look through their different chains, Pizza Hut, KFC, Taco Bell, it's KFC that is the standout, Brian Sozzi. Those KFC comps up 6%.

BRIAN SOZZI: Yeah, this quarter had me thinking back to those really glorious days for me, Julie and Brian, of eating honey barbecue wings from KFC in the back of my '87 Monte Carlo SS. It's very much a true story. Feel free to tweet me more on it. But nonetheless, KFC unit growth up 7%. Unit growth, that is Yum Brands opening up more locations for the KFC brand in the US, or should I say, globally. That is the fastest growth rate in some time for Yum Brands and the fastest growth rate amongst those brands inside the Yum Brands' portfolio. Same store sales up 6% for KFC, led the way.

Pizza Hut same store sales up 6%, also pretty good. Taco Bell same store sales up about 5%. And if there's any concern in why you're seeing the stock down a little bit, they did miss slightly on their overall same store sales result. Also, too, some analysts that I talked to are flagging me that Taco Bell on a two-year stack basis, or basically, two-year average of same store sales, that slowed down quarter over quarter for Taco Bell. So two little red flags there, but nonetheless, looking forward to catching up with Yum Brands CEO David Gibbs. And that interview will be very shortly.

BRIAN CHEUNG: Yeah, and just kind of to jump in here, not to kind of bring any sort of boring narratives here to a chalupa company, but really, they also completed their acquisition of a kind of AI system called Dragontail. It's apparently supposed to be used to manage the kitchen flow, the way that they dispatch delivery drivers. It was a $90 million plus deal that they closed during that quarter. That's a big deal.

And for what it's worth, this isn't some M&A transaction that they're hoping is going to provide synergies to the company. I mean, they're using it in their Pizza Hut restaurants already and already seeing the positive bottom line benefit from this system. So, again, the scale that they're doing here, the Capex that they're putting, this is not their only acquisition that they've made in 2021. Those are all big factors to the story of this company as well.

JULIE HYMAN: Yeah, I do want to mention-- and this will be something to talk to Yum Brands about-- the restaurant margins at Pizza Hut and Taco Bell a little bit short, it looks like, of what analysts had been predicting. Let us turn to Comcast now. And Comcast, as I read the number, seems to be that some of its businesses are shrinking, but still are better than estimated. So the earnings per share there coming in better, $0.87 versus $0.75 estimated, revenue up 19%, also beating estimates.

And the company is still seeing growth at NBC Universal overall, but at its core cable business, it added 300,000 broadband internet customers. That's roughly in line. And the company lost 408,000 pay TV customers, which is a smaller drop than estimated. But bottom line, people are still cutting the cord here. So that's something that the company continues to see, even as its media networks are still performing, to some extent. The Olympics, of course, happening over the summer. And even though it was not a very watched Olympics in the historical scheme of things, that still gave Comcast, Brian Cheung, a boost.

BRIAN CHEUNG: Yeah, well, I mean, shares down about 2% right now. I mean, yeah, it's fine that their adjusted EBITDA was up 10%, but a very noisy quarter, as you point out, the Olympics. Their media revenue was up 46% because of that boost, but actually, EBITDA only increased by 1%. And that's because broadcasting the Olympics is an enormously expensive operation.

And again, it's kind of across the board. A bit of an open question as to how profitable it is to have an Olympics contract. Of course, NBC is going to be stuck with this for a while. So they're going to have to deal with this as soon as the beginning of next year when the Winter Olympics happen in Beijing, which Peacock will also be broadcasting.

But again, if you look at their kind of underlying broadband business, 300,000 net adds, that was above estimates. But again, this is kind of grappling with their model of trying to transition to cord cutters with their Peacock service. How does that impact their ability to get more cable subscribers? Because that's normally been the story for these types of traditional companies. And one big reason why the likes of Comcast sought to buy NBC Universal x amount of years ago was to try to cut down on the contract costs that it would cost them to carry these types of networks.

So whether or not that type of model is disrupted in the future, I'm not saying that Comcast would want to divest NBC Universal, but you do start to wonder if this is a quarter of that's part of their transitional story. Of course, even if they did want to spin off NBC, they would have to also surrender the theme parks revenue, which was massive for them in this quarter, but also last quarter, especially compared to the 2020 quarters, where those parks were closed.

JULIE HYMAN: Yeah, the parks definitely a big part of it. Also, Peacock, by the way, its revenue just about doubling, but losses associated with that also grew. Finally, just quickly want to touch on Merck. That company coming out with earnings per share that beat estimates, revenue that beat estimates, and Merck raised its annual forecast. Now is looking for as much as $5.70 a share for the full year in profit. That is versus the upper end of the range that was at $5.57.

Couple of things going on here, Merck is very sort of hospital administered treatment dependent, and a lot of those hospital treatments are coming back. And then there is the antiviral, the COVID antiviral that the company makes, Molnupiravir, as we continue our trend of trying to say drug names correctly. Merck says it plans to make at least 20 million treatment courses of that drug next year. It is also partnering with an international organization to offer that drug globally on a sliding scale to countries that need it. So that's something to talk about.

Vaccine sales contributed to third quarter results. However, sales of its pneumococcal vaccine declined by nearly 30% because people seem to be prioritizing the COVID-19 vaccine versus vaccine like that. Gardasil sales, $1.99 billion, topping estimates. Its cancer drug, Keytruda, also performing well, along with its duo of diabetes numbers. And animal health sales, $1.42 billion, in line with estimates. All of that resulting in gain of a little more than 4% in those shares this morning.