A month has gone by since the last earnings report for Yum China Holdings (
YUMC Quick Quote YUMC - Free Report) . Shares have added about 5.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Yum China due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Yum China Q4 Earnings & Revenues Top Estimates
Yum China reported solid fourth-quarter 2020 results, with earnings and revenues surpassing the Zacks Consensus Estimate and increasing on a year-over-year basis. While the bottom line beat the consensus mark for the 13th straight quarter, the top line outpaced the same for the fifth straight quarter.
Earnings & Revenue Discussion
During the fourth quarter, the company reported adjusted diluted earnings of 35 cents that beat the Zacks Consensus Estimate of 24 cents by 45.8%. Moreover, the reported figure increased 40% from the year-ago quarter’s levels. Excluding gains from its equity investment in Meituan and foreign currency translation, the top line surged 58% and 47%, respectively.
Meanwhile, quarterly revenues of $2,259 million not only surpassed the consensus mark of $2,160 million, but also increased 11.3% on a year-over-year basis. Excluding foreign currency translation, the top line increased 5% year over year. Total system sales in the reported quarter increased 5% year over year. Notably, system sales at KFC moved up 3%, while that of Pizza Hut fell 3%. Meanwhile, same-store sales declined 4% year over year, primarily owing to a decline of 4% at KFC and 5% at Pizza Hut. Operating Highlights
In the fourth quarter, total costs and expenses expanded 7% year over year to $2,079 million compared with $1,935 million in the year-ago quarter. The deterioration can be primarily attributed to 8% increase in food and paper costs along with 6% increase in occupancy and other operating costs.
Restaurant margin in the quarter under review was 15.1%, up 270 basis points from the year-ago quarter’s levels. The upside was primarily led by lower commodity prices, relief provided by landlords and government agencies and other store cost savings. However, this was partially offset by dismal same-store performance, value promotions and wage inflation. During the quarter, adjusted operating profit totaled $182 million, up 73.3% from the year-ago quarter’s figures. Adjusted net income came in at $153 million compared with $98 million in the prior-year quarter. Balance Sheet
Cash and cash equivalents as of Dec 31, 2020, totaled $1,158 million compared with $1,046 million as on Dec 31, 2019. Inventories in the fourth quarter were $398 million compared with $380 million at 2019-end.
The company’s board of directors announced a dividend of 12 cents per common share. The dividend is payable on Mar 25, 2021, to shareholders of record at the close of business as of Mar 3. Unit Development and Other Details
In the fourth quarter, Yum China opened 505 new restaurants and remodeled 297. During the quarter, the company’s delivery contributed nearly 29% of KFC and Pizza Hut's company sales, up from 22% in the prior-year quarter.
Digital orders during the fourth quarter contributed 83% of KFC and Pizza Hut's company sales compared with 61% in the previous-year quarter. Notably, loyalty programs and member sales of KFC and Pizza Hut led to year-over-year growth. 2020 Highlights
Total revenues in 2020 came in at $8,263 million compared with $8,776 million in 2019.
General and administrative expenses in 2020 came in at $479 million compared with $487 million in 2019. In 2020, adjusted diluted earnings per share came in at $1.53 compared with $1.88 in the previous year. 2021 Outlook
Yum China continues to focus on expanding its store footprint and developing emerging brands. Notably, the company expects to open 1000 (gross) new stores in 2021. Also, increased investments in terms of digitization and infrastructure are likely to support their expansion plans. Meanwhile, capital expenditures in 2021 are expected to be approximately $600 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -21.3% due to these changes.
Currently, Yum China has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Yum China has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.