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Yum! Brands (YUM) Up 2.4% Since Earnings Report: Can It Continue?

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About a month has gone by since the last earnings report for Yum! Brands, Inc. (YUM - Free Report) . Shares have added about 2.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted 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! Brands Beats on Q2 Earnings, Revenues Down Y/Y

Yum! Brands posted better-than-expected second-quarter 2017 results with both earnings and revenues surpassing the Zacks Consensus Estimate.

Earnings and Revenue Discussion

Adjusted earnings of $0.68 per share surpassed the Zacks Consensus Estimate of $0.61 by 11.5%. Further, earnings increased 21% year over year owing to lower share count.

Meanwhile, total revenues of $1.45 billion were down over 4% year over year primarily due to lower company sales. However, revenues came above the Zacks Consensus Estimate of $1.41 billion by nearly 3%.

Comps Discussion

From Jan 2016, the company’s India business integrated its three restaurant brands into the global KFC, Pizza Hut and Taco Bell divisions. Notably, on Oct 31, 2016, Yum! Brands’ completed the spin-off of the China business into an independent, publicly-traded company. Post-separation Yum! Brands now reports under three segments – KFC, Pizza Hut and Taco Bell.

Going forward, the company aims to drive growth at KFC, Pizza Hut and Taco Bell brands via its strategic transformation plan, following the separation of the company’s all-important China division. Notably, the company’s transformation and growth strategy entails employing greater focus on the development of its three iconic global brands, increasing its franchise ownership, and creating a leaner and more efficient cost structure.

Comps at the KFC division were up 3% same as the year-ago quarter figure but higher than last quarter’s growth of 2%. Growth was witnessed across the U.S. as well as developed and emerging markets internationally.

Pizza Hut comps decreased 1% same as the year-ago quarter figure but comparing favorably with last quarter’s dip of 3%. Comps grew 2% in international emerging markets but declined 3% in the U.S. Meanwhile, comps at international developed markets remained flat.

Taco Bell comps increased 4%, comparing favorably with comps decline of 1% a year ago but lower than the 8% rise in the preceding quarter.

While restaurant margins improved at KFC and Taco Bell, it declined at the Pizza Hut division.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in  fresh estimates. There have been two revisions higher for the current quarter compared to five lower.

Yum! Brands, Inc. Price and Consensus

VGM Scores

At this time, Yum! Brands' stock has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is suitable solely for momentum investors.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions indicates an upward shift. The stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.



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