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What to Expect From Yum! Brands (YUM) in Q4 Earnings?

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Yum! Brands, Inc. (YUM - Free Report) is scheduled to report fourth-quarter 2017 numbers on Feb 8, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 3.03%. In fact, it outpaced earnings estimates in all of the trailing four quarters, with an average beat of 7.77%.

We expect Yum!’s refranchising efforts to continue weighing on its revenues, while boosting its operating performance and eventually the bottom line, in the to-be-reported quarter.

The company’s stock has rallied 20.4% year to date, underperforming the industry’s gain of 13.5%

Let’s delve deeper into what we have anticipated.

Refranchising to Keep Top Line Softer

Yum! Brands is likely to witness a decline in company sales in the fourth-quarter as an impact of its continued strategic refranchising initiative. The reduction in ownership through refranchising weighs on near-term revenues.

The Zacks Consensus Estimate for revenues for the quarter is pegged at $1.6 billion. The estimate, when compared with the year-ago quarter’s actual figures, indicates a decline of 20.6% in revenues.

Yum! Brands, Inc. Revenue (TTM)

Bottom Line to Benefit From Growing Franchisee Operating Capacity

The shift to refranchising has substantially boosted and will continue to boost the company’s operating margin, EPS growth, ROE expansion and cash-flow growth. In third-quarter 2017, the company increased its franchise ownership to 95% and is committed toward becoming at least 98% franchised.

The consensus mark for the adjusted EPS in the fourth-quarter stands at 80 cents, depicting year-over-year growth of 1.3% compared with the year-ago quarter’s actual figure.

Our Model Suggests a Beat

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially, if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Yum! Brands has a Zacks Rank #3 and an Earnings ESP of +0.21%, a combination that suggests that the company is likely to beat estimates.

Stocks to Consider

Here are a few stocks from the restaurant-space that investors may consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Domino's Pizza (DPZ - Free Report) has an Earnings ESP of +0.32% and a Zacks Rank #2 (Buy). The company is scheduled to report its quarterly numbers on Feb 20. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cheesecake Factory (CAKE - Free Report) has an Earnings ESP of +0.17% and a Zacks Rank #2. The company is scheduled to report its quarterly numbers on Feb 21.

Fogo de Chao has an Earnings ESP of +5.63% and a Zacks Rank #3. The company is expected to release its quarterly numbers on Mar 13.

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