It has been about a month since the last earnings report for Yum China Holdings (
YUMC Quick Quote YUMC - Free Report) . Shares have lost about 0.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Yum China due for a breakout? 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 catalysts.
Yum China Q4 Earnings and Revenues Miss Estimates
Yum China reported fourth-quarter 2022 earnings and revenues missed the Zacks Consensus Estimate. On a year-over-year basis, the top line declined while the bottom line increased.
During the quarter, the company’s operations were affected by the resurgence of COVID-19 cases. The scattered outbreaks of COVID-19 in major regions of China persisted throughout the fourth quarter and stringent public health measures (mass testing and regional lockdowns) were implemented to counter the same. Reduced traveling, fewer social activities, softened consumption demand and labor shortage negatively impacted the company’s performance in the fourth quarter. The infection outbreak also resulted in reduced same-store sales. Earnings & Revenue Discussion
For fourth-quarter 2022, the company reported adjusted earnings of 13 cents. The figure missed the Zacks Consensus Estimate of 14 cents by 7.1%. The bottom line however increased 333.3% from 3 cents reported in the year-ago quarter.
Quarterly revenues of $2,088 million missed the consensus mark of $2,158 million by 3.2%. The top line declined 8.9% on a year-over-year basis. Excluding foreign currency translation, the top line increased 2% year over year. Total system sales in the reported quarter decreased 4% year over year. System sales at KFC and Pizza Hut declined 1% and 6% (excluding foreign currency translation), respectively. Meanwhile, same-store sales dropped 4% year over year primarily due to a fall of 3% at KFC and 8% (excluding foreign currency translation) at Pizza Hut. Operating Highlights
During fourth-quarter 2022, total costs and expenses totaled $2,047 million, up 23.5% from $1,658 million reported in the prior-year quarter.
Restaurant margin in the quarter under review was 10.4%, up 290 basis points from the year-ago quarter’s levels. The growth was primarily a result of labor productivity, operational efficiency, temporary relief as well as initiatives to create a new base level for costs. During the quarter, adjusted operating profit totaled $40 million, surging 152% from the year-ago quarter’s levels. Adjusted net income amounted to $52 million compared with $11 million reported in the prior-year quarter. Balance Sheet
As of Dec 31, 2022, cash and cash equivalents came in at $1,130 million compared with $1,136 million as of Dec 31, 2021. Inventories during the fourth quarter came in at $417 million compared with $321 million in the previous quarter.
During the fourth quarter, the company repurchased $52 million worth of stock at an average price of $44.13. As of Dec 31, the company had approximately $1.2 billion available for the buyback program. The company declared a quarterly cash dividend of 13 cents per common share. The dividend will be payable on Mar 28, 2023, to shareholders of record as of Mar 7, 2023. Unit Development and Other Updates
During fourth-quarter 2022, Yum China opened 538 net new restaurants owing to the development of the KFC and Pizza Hut brands. As of Dec 31, the company’s total restaurant count was 12,947, up by 1,159 stores year over year.
During the quarter under review, the company’s delivery contributed nearly 45% of KFC and Pizza Hut's company sales, up nearly 10 percentage points from the prior-year quarter’s levels. Digital orders during the quarter contributed 90% to KFC and Pizza Hut's company sales compared with 88% reported in the previous-year quarter. Loyalty programs of KFC and Pizza Hut led to year-over-year growth. During the fourth quarter, KFC and Pizza Hut loyalty programs increased to more than 410 million members. 2022 Highlights
Total revenues in 2022 amounted to $9.57 billion compared with $9.85 million in 2021.
Adjusted net income in 2022 totaled $446 million compared with $525 million in 2021. For 2022, earnings per share (EPS) came in at $1.04 per share compared with $2.28 reported in the previous year. 2023 Outlook
In 2023, Yum China expects to open approximately 1,100 to 1,300 new stores. The company anticipates solid expansion related to KFC and Pizza Hut stores along with growth of same-store sales. Capital expenditures in 2023 are anticipated in the range of $700-$900 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -8.51% due to these changes.
Currently, Yum China has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 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. Notably, Yum China has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.