We expect Yum! Brands, Inc. (YUM - Free Report) to beat expectations when it reports second-quarter 2017 numbers on Aug 3, before the opening bell.
Last quarter, the company delivered a positive earnings surprise of 8.33%. In fact, it outpaced/met earnings estimates in each of the trailing four-quarters with an average beat of 4.85%.
Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Yum! Brands is likely to beat earnings because it has the perfect combination of the two key ingredients.
Zacks ESP: Yum! Brands has an Earnings ESP of +1.64% as the Most Accurate estimate is 62 cents while the Zacks Consensus Estimate is pegged lower at 61 cents. A favorable Earnings ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Yum! Brands currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates.
Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Yum! Brands favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.
What is Driving Better-than-Expected Earnings?
Following China business separation, Yum! Brands endeavors to drive growth by employing greater focus on the development of its three iconic global brands, increasing its franchise ownership, and creating a leaner, more efficient cost structure, should bolster second-quarter results.
Particularly, augmented pace of unit development, along with increased investments in technology-driven initiatives should drive top-line growth in the to-be-reported quarter.
At Taco Bell, the brand’s value-driven, innovation-focused model, inventive marketing strategies, expanded line of breakfast offerings and expansion of delivery program should drive comps.
Coming to the Pizza Hut brand, while the international division is expected to continue doing well, Pizza Hut U.S. might post soft results for the quarter despite numerous strategic efforts similar to the last few quarters.
Meanwhile, KFC’s efforts to revamp its outlets, focus on its operational excellence, delivery services, innovation and convenience are expected to continue boosting comps. In fact, the launch of the Zinger spicy chicken sandwich in the U.S. in the quarter should further propel sales.
However, slowdown in emerging markets along with negative currency translation may hamper the quarter’s performance. Further, a soft consumer spending environment in the U.S. restaurant space might continue to restrict revenue growth.
Other Stocks to Consider
Yum! Brands is not the only company looking up this earnings season. Here are some other companies to consider in the broader Retail-Wholesale sector, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Alibaba Group Holding Limited (BABA - Free Report) has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
J. C. Penney Company, Inc. (JCP - Free Report) has an Earnings ESP of +142.86% and a Zacks Rank #3.
The Priceline Group Inc. has an Earnings ESP of +2.31% and a Zacks Rank #3.
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