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Yum! Brands (YUM) Q3 Earnings Meet Estimates; Stock Down

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Yum! Brands, Inc. YUM reported third-quarter 2016 earnings of $1.09 per share, in line with the Zacks Consensus Estimate. Further, earnings increased 9% year over year due to lower share count.

Meanwhile, total revenue of $3.32 billion declined 3.2% year over year and missed the Zacks Consensus Estimate of $3.51 billion by 5.5%.

Although Yum! Brands upped its profit outlook for the third time this year, shares of the company declined over 2% in afterhours trading on Oct 5, due to soft comps in the all-important China division.

YUM! BRANDS INC Price, Consensus and EPS Surprise


YUM! BRANDS INC Price, Consensus and EPS Surprise | YUM! BRANDS INC Quote

Comps Discussion

Yum! Brands currently reports under four segments – China, KFC, Pizza Hut and Taco Bell. From Jan 2016, the company’s India business integrated its three restaurant brands into the global KFC, Pizza Hut and Taco Bell divisions. Meanwhile, the company is on track to spin-off the China business into an independent, publicly-traded company by Oct 31, 2016.

China division’s comps were down 1% in the quarter, and were unfavorable compared with the 2% growth witnessed in the year-ago quarter. Meanwhile, comps were flat in the last quarter. Notably, comps at both KFC and Pizza Hut Casual Dining witnessed a decline of 1% and 4% in the quarter, respectively.

Comps at the KFC division were up 4%, better than the year-ago quarter growth of 3% and also compared favorably with prior-quarter growth of 2%. Growth was witnessed across U.S. markets, developed markets and emerging markets.

Pizza Hut comps dipped 1%, comparing unfavorably with both the year-ago quarter’s 1% increase and last quarter’s flat comps. Comps grew 1% in developed markets and declined 2% and 1%, respectively, in the U.S. and emerging markets.

Taco Bell comps inched up 3% year over year. Though the figure compared unfavorably with the year-ago growth level of 4%, it was better than the prior-quarter decline of 1%.

Restaurant margins improved at China and KFC while declined at the Taco Bell and Pizza Hut divisions.

2016 Guidance

Management expects operating profit growth (in constant currency) of at least 15% in 2016, up from the prior guidance of 14%. Notably, this is the third time the company has raised its operating profit growth forecast.

Zacks Rank & Stocks to Consider

Yum! Brands has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Shake Shack Inc. SHAK, Wingstop Inc. WING and The Wendy's Company (WEN - Free Report) . All the three stocks carry 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 Shake Shack’s 2016 earnings moved up 2.3% over the last 60 days. Further, for full-year 2016, EPS is expected to grow a solid 40.6%.

The Zacks Consensus Estimate for Wendy’s 2016 earnings climbed 2.6% over the last 60 days. Moreover, the company has posted positive earnings surprise in all of the last four quarters, with an average beat of 29.01%.

Wingstop’s earnings have surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 15.46%. Further, for full-year 2016, EPS is expected to grow 17.6%.

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