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Yum! Brands (YUM) Q2 Earnings Top Estimates, Comps Disappoint

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Yum! Brands (YUM - Free Report) delivered better-than-expected results for the seventh straight quarter, when the company reported second-quarter 2018 numbers. Adjusted earnings of 82 cents per share surpassed the Zacks Consensus Estimate of 74 cents. Also, the bottom line increased 20% on a year-over-year basis. The shift to refranchising substantially bolstered the company’s operating margin and earnings per share. The trend is expected to continue in the coming quarters

Total revenues of $1,368 million were down 6% year over year and were almost in line with the consensus estimate of $1,367 million. The downside was mainly due to decrease in company sales as an impact of its continued strategic refranchising initiatives.

Following the quarterly results, shares of Yum! Brands decreased nearly 2% in pre-market trading as comps growth of 1% missed the analysts’ expectations. Moreover, the stock has lost 4% in the past three months compared with the industry’s 1% decline.

Yum! Brands, Inc. Price, Consensus and EPS Surprise

Segmental Performance

Yum! Brands reports under three segments — KFC, Pizza Hut and Taco Bell.

Revenues from KFC totaled $651 million, down 16% on a year-over-year basis. Comps at this division increased 2% compared with the year-ago quarter’s rise of 3% and the previous quarter’s increase of 2%.

Segment operating margin was up 4.6% to 36.1% year over year owing to refranchising and same-store sales growth.

At Pizza Hut, revenues amounted to $233 million, up 5% on a year-over-year basis. Comps were down 1% compared with the year-ago quarter’s decline of 1% and preceding quarter’s increase of 1%.

Segment operating margin was down 3.5% year over year to 34.6%.

Taco Bell revenues were $484 million, up 6% from the year-ago quarter. Comps rose 2%, which compared unfavorably with the year-ago quarter growth of 4%. In first-quarter 2018, the segment’s comps had gained 1%.

Segment operating margin was down 260 basis points to 30.8% year over year.

Yum! Brands carries a Zacks Rank #3 (Hold).

Other Financial details

Cash and cash equivalents as of Jun 30, 2018 totaled $313 million compared with $1,522 million as of Dec 31, 2017. Long-term debt at the end of quarter was $9,612 million, compared with $9,429 million at the end of 2017. During the quarter, the company repurchased 7.6 million shares for $643 million.

Key Picks

Better-ranked stocks in the same space include BJ's Restaurants, Inc. (BJRI - Free Report) , Wingstop Inc. (WING - Free Report) and Carrols Restaurant Group, Inc. (TAST - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BJ's Restaurants has an impressive long-term earnings growth rate of 15.3%.

Wingstop reported better-than-expected earnings in the trailing four quarters, with an average beat of 16.2%.

Carrols Restaurant Group has long-term earnings growth rate of 20%.

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