It has been about a month since the last earnings report for Yum China Holdings (
YUMC Quick Quote YUMC - Free Report) . Shares have added about 3.9% 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 the most recent earnings report in order to get a better handle on the important drivers.
Yum China Top Q1 Earnings & Revenues Estimates
Yum China Holdings, Inc. reported solid first-quarter 2021 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 14th straight quarter, the top line outpaced the same for the sixth consecutive quarter.
Earnings & Revenue Discussion
During the first quarter, the company reported adjusted diluted earnings of 54 cents that beat the Zacks Consensus Estimate of 41 cents by 31.7%. Moreover, the reported figure increased 217% from the year-ago quarter (excluding the mark-to market losses from equity investments). Excluding losses from foreign currency translation, the bottom line surged 194%.
Meanwhile, revenues of $2,557 million not only surpassed the consensus mark of $2,195 million but also increased 45.8% on a year-over-year basis. Excluding foreign currency translation, the top line increased 36% year over year. Total system sales in the reported quarter increased 34% year over year. Notably, system sales at KFC moved up 24% and at Pizza Hut 57%. Meanwhile, same-store sales increased 10% year over year, primarily owing to an increase of 5% at KFC and 38% at Pizza Hut. Operating Highlights
In the first quarter, total costs and expenses expanded 33.7% year over year to $2,215 million compared with $1,657 million in the year-ago quarter. The deterioration can be primarily attributed to a 42% increase in food and paper costs along with a 38% increase in payroll and employee benefits and a 31% increase in occupancy and other operating expenses.
Restaurant margin in the quarter under review was 18.7%, up 800 basis points from the year-ago quarter’s levels. The upside was primarily led by sales leverage, lower commodity prices and higher productivity, partially offset by increased value promotions, lower temporary relief provided by landlords and government agencies, and wage inflation. During the quarter, adjusted operating profit totaled $345 million, up 249% from the year-ago quarter. Adjusted net income came in at $233 million compared with $63 million in the prior-year quarter. Balance Sheet
Cash and cash equivalents as of Mar 31, 2021, totaled $1,084 million compared with $1,158 million as on Dec 31, 2020. Inventories in the first quarter were $345 million compared with $398 million at 2020-end.
The company’s board of directors announced a dividend of 12 cents per common share. The dividend is payable on Jun 18, 2021, to shareholders of record at the close of business as of May 25. Unit Development and Other Updates
In the first quarter, Yum China opened 315 new restaurants and remodeled 108. During the quarter, the company’s delivery contributed nearly 29% of KFC and Pizza Hut's company sales, down from 35% in the prior-year quarter.
Digital orders during the first quarter contributed 84% of KFC and Pizza Hut's company sales compared with 80% in the previous-year quarter. Notably, loyalty programs and member sales of KFC and Pizza Hut led to year-over-year growth. On Mar 16, 2021, the company acquired a 5% equity interest in Fujian Sunner Development Co., Ltd, for nearly $261 million. Moreover, on Mar 26, 2021, the company began construction of its Southwest Supply Chain Support Center in Chengdu, with a total investment of nearly $28 million. 2021 Outlook
Yum China continues to focus on expanding its store footprint and developing emerging brands. Notably, the company expects to open 1,000 (gross) new stores in 2021. Also, increased investments in terms of digitization and infrastructure are likely to support its expansion plans. Meanwhile, capital expenditures in 2021 are expected at $600 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, Yum China has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Yum China has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.