We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Yum! Brands (YUM) Poised for Growth on Strategic Initiatives
Read MoreHide Full Article
On May 23, we issued an updated research report on the world's largest restaurant company in terms of system units, Yum! Brands, Inc. (YUM - Free Report) .
Currently, Yum! Brands owns, operates and franchises over 43,500 restaurants in more than 135 countries and territories. In fact, its brands -- KFC, Pizza Hut and Taco Bell -- are regarded as the global leaders of the chicken, pizza and Mexican-style food categories.
Impact of the China Business Separation
On Nov 1, 2016, Yum! Brands announced that it has spun off its all-important China division into an independent, publicly traded company Yum China Holdings, Inc. (YUMC - Free Report) . Post separation, shares of Yum! Brands have slightly underperformed the Zacks categorized Retail–Restaurants industry. While the industry gained 19.4%, the company has witnessed a rise of 16.9%.
Nonetheless, the company is leaving no stone unturned to subsidize the effects of the spin-off as well as to bring its growth story back on the track. Notably, Yum! Brands three-year strategic transformation plan is expected to bring much growth, moving ahead.
Efforts Undertaken
Yum! Brands’ transformation and growth strategy entails greater focus on the development of its three iconic global brands, increasing its franchise ownership, and creating a leaner and more efficient cost structure. It is also focusing on bold restaurant development as well as unrivaled culture and talent to drive continued growth for the company.
While the Pizza Hut brand’s international division has been largely doing well, Yum! Brands is working on a number of areas to take its fair share of growth in the U.S. market and mark a turnaround. Evidently, the company entered into an agreement with the Pizza Hut U.S. franchisees.
Per the agreement, Yum! Brands will invest roughly $130 million to improve brand marketing alignment as well as accelerate enhancements to operations and technology The deal also includes a permanent commitment to incremental advertising and aggressive investment in a digital delivery-centric strategy. This is expected to increase convenience for customers and the company expects to see the results pay off in 2018 and beyond.
At KFC, management is focused on convenience and expects to further increase brand engagement and boost sales through a big push on the digital front in 2017. Meanwhile, at KFC International Yum! Brands is aggressively pursuing its global delivery initiative as delivery is considered to be the fastest growing channel in the business.
Meanwhile, management seeks to continue developing the Taco Bell brand through continued focus on innovation and value, expanding its delivery program, inventive marketing strategies and extended line of breakfast offerings. On international front too, Taco Bell continues to build momentum with new restaurant openings in various markets, given the growing enthusiasm for the brand and its improving economics.
It should be noted that the China division’s spin-off has largely made Yum! Brands a more asset-light company, as many company-owned restaurants have been in the Chinese market. Moreover, Yum! Brands is committed toward becoming at least 98% franchised by the end of 2018. Thus, it expects to become a "pure play" franchisor with more stable earnings, higher profit margins, lower capital requirements and stronger cash flow conversion,
Additionally, Yum! Brands aims to revamp its financial profile and thereby improve the efficiency of its organization and cost structure globally. It believes that a “slimmer Yum Brands” would lead to efficiency gains.
Concerns
Yum! Brands is highly exposed to various emerging nations in Latin America. In fact, these nations have been exhibiting decelerating growth for some time due to various macro headwinds, which might dent sales in the near term.
Foreign exchange translation is also a concern for the company, given its significant international presence.
Meanwhile, the first quarter of 2017 marked the fifth consecutive quarter of negative comp sales for the U.S. restaurant industry as a whole, thereby continuing the somber mood. Thus, a choppy sales environment in the domestic space is likely to keep the top line under pressure.
Bottom Line
We are positive on Yum! Brands manifold efforts to drive growth at its three iconic brands and thereby improve the key drivers of its business, comps and net new units.
In fact, the company’s efforts have started bearing fruits as reflected by positive estimate revisions. Earnings estimates for full-year 2017 and 2018 have moved up 1.5% and 0.6%, respectively, over the 30 days.
However, the China business accounted for more than half of the company’s total revenue and had played a pivotal role in its solid performance in the last few years. Thus, the slight uncertainty surrounding the company’s business post the China unit spin-off could continue to weigh on its performance, in the near term.
The Zacks Consensus Estimate for Del Taco’s 2017 earnings climbed 1.9%, over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 5.69%.
Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters with an average beat of 3.35%. In fiscal 2017, EPS (earnings per share) is expected to grow 12.9%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Yum! Brands (YUM) Poised for Growth on Strategic Initiatives
On May 23, we issued an updated research report on the world's largest restaurant company in terms of system units, Yum! Brands, Inc. (YUM - Free Report) .
Currently, Yum! Brands owns, operates and franchises over 43,500 restaurants in more than 135 countries and territories. In fact, its brands -- KFC, Pizza Hut and Taco Bell -- are regarded as the global leaders of the chicken, pizza and Mexican-style food categories.
Impact of the China Business Separation
On Nov 1, 2016, Yum! Brands announced that it has spun off its all-important China division into an independent, publicly traded company Yum China Holdings, Inc. (YUMC - Free Report) . Post separation, shares of Yum! Brands have slightly underperformed the Zacks categorized Retail–Restaurants industry. While the industry gained 19.4%, the company has witnessed a rise of 16.9%.
Nonetheless, the company is leaving no stone unturned to subsidize the effects of the spin-off as well as to bring its growth story back on the track. Notably, Yum! Brands three-year strategic transformation plan is expected to bring much growth, moving ahead.
Efforts Undertaken
Yum! Brands’ transformation and growth strategy entails greater focus on the development of its three iconic global brands, increasing its franchise ownership, and creating a leaner and more efficient cost structure. It is also focusing on bold restaurant development as well as unrivaled culture and talent to drive continued growth for the company.
While the Pizza Hut brand’s international division has been largely doing well, Yum! Brands is working on a number of areas to take its fair share of growth in the U.S. market and mark a turnaround. Evidently, the company entered into an agreement with the Pizza Hut U.S. franchisees.
Per the agreement, Yum! Brands will invest roughly $130 million to improve brand marketing alignment as well as accelerate enhancements to operations and technology The deal also includes a permanent commitment to incremental advertising and aggressive investment in a digital delivery-centric strategy. This is expected to increase convenience for customers and the company expects to see the results pay off in 2018 and beyond.
At KFC, management is focused on convenience and expects to further increase brand engagement and boost sales through a big push on the digital front in 2017. Meanwhile, at KFC International Yum! Brands is aggressively pursuing its global delivery initiative as delivery is considered to be the fastest growing channel in the business.
Meanwhile, management seeks to continue developing the Taco Bell brand through continued focus on innovation and value, expanding its delivery program, inventive marketing strategies and extended line of breakfast offerings. On international front too, Taco Bell continues to build momentum with new restaurant openings in various markets, given the growing enthusiasm for the brand and its improving economics.
It should be noted that the China division’s spin-off has largely made Yum! Brands a more asset-light company, as many company-owned restaurants have been in the Chinese market. Moreover, Yum! Brands is committed toward becoming at least 98% franchised by the end of 2018. Thus, it expects to become a "pure play" franchisor with more stable earnings, higher profit margins, lower capital requirements and stronger cash flow conversion,
Additionally, Yum! Brands aims to revamp its financial profile and thereby improve the efficiency of its organization and cost structure globally. It believes that a “slimmer Yum Brands” would lead to efficiency gains.
Concerns
Yum! Brands is highly exposed to various emerging nations in Latin America. In fact, these nations have been exhibiting decelerating growth for some time due to various macro headwinds, which might dent sales in the near term.
Foreign exchange translation is also a concern for the company, given its significant international presence.
Meanwhile, the first quarter of 2017 marked the fifth consecutive quarter of negative comp sales for the U.S. restaurant industry as a whole, thereby continuing the somber mood. Thus, a choppy sales environment in the domestic space is likely to keep the top line under pressure.
Bottom Line
We are positive on Yum! Brands manifold efforts to drive growth at its three iconic brands and thereby improve the key drivers of its business, comps and net new units.
In fact, the company’s efforts have started bearing fruits as reflected by positive estimate revisions. Earnings estimates for full-year 2017 and 2018 have moved up 1.5% and 0.6%, respectively, over the 30 days.
However, the China business accounted for more than half of the company’s total revenue and had played a pivotal role in its solid performance in the last few years. Thus, the slight uncertainty surrounding the company’s business post the China unit spin-off could continue to weigh on its performance, in the near term.
Zacks Rank & Stocks to Consider
Yum! Brands has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Del Taco Restaurants, Inc. and Darden Restaurants, Inc. (DRI - Free Report) holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Del Taco’s 2017 earnings climbed 1.9%, over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 5.69%.
Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters with an average beat of 3.35%. In fiscal 2017, EPS (earnings per share) is expected to grow 12.9%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>