Yum! Brands (YUM) Q4 Earnings & Revenues Miss Estimates

Yum! Brands, Inc. YUM has delivered lower-than-expected results in the fourth quarter of 2018.

Adjusted earnings of 40 cents per share missed the Zacks Consensus Estimate of 97 cents by 58.8%. Further, the bottom line decreased 58.3% on a year-over-year basis. While the shift to refranchising substantially helped the company’s operating margin, pre-tax investment expenses negatively affected earnings in the quarter under review.

Total revenues of $1,558 million were down 1.2% year over year and also lagged the consensus estimate of $1,587 million. The downside was caused by decreased sales, owing to the company’s continued refranchising initiatives.

Worldwide system sales, excluding foreign currency translation, grew 6%, with Taco Bell at 9%, KFC at 7% and Pizza Hut at 2% in the quarter under review. Also, the company opened 865 net new units and added 1,282 Telepizza units, reflecting 7% net new unit growth. Moreover, Yum! Brands refranchised 331 restaurants, including 227 KFC and 104 Taco Bell units for pre-tax proceeds of $380 million. At the end of the quarter under review, the company’s global franchise ownership mix increased to 98%.

Notably, shares of Yum! Brands have gained 24% in the past year, outperforming the industry’s rally of 17.1%.

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Segmental Performance

Yum! Brands reports under three segments — KFC, Pizza Hut and Taco Bell.

Revenues from KFC totaled $686 million, down 16% on a year-over-year basis. Comps at this division increased 3%, same as the year-ago quarter’s and third quarter’s increase.

This segment’s operating margin was up 3.8% to 37.2% year over year, owing to refranchising and same-store sales growth, partially offset by lower advertising and other franchise service revenues.

At Pizza Hut, revenues amounted to $275 million, up 18% on a year-over-year basis. Comps remained flat compared with the year-ago quarter’s increase of 1% and the third quarter’s decline of 1%.

The segment’s operating margin was down 5.7% year over year to 33.1% due to the gross up of advertising and other franchise service revenues, partially offset by refranchising.

Taco Bell’s revenues were $597 million, up 12% from the year-ago quarter. Comps rose 6%, which compared favorably with the year-ago quarter’s growth of 2%. In third-quarter 2018, the segment’s comps gained 5%.

Segment’s operating margin was down 170 basis points to 31.9% year over year.

Other Financial details

Cash and cash equivalents as of Dec 31, 2018, totaled $292 million compared with $1,522 million as of Dec 31, 2017. Long-term debt at the end of the reported quarter was $9,751 million compared with $9,429 million at the end of 2017. During the quarter, the company repurchased 7.8 million shares for $696 million.

Yum! Brands, Inc. Price, Consensus and EPS Surprise

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