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Yum (YUM) Up 4.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Yum Brands (YUM - Free Report) . Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Yum due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Yum! Brands Q3 Earnings Top Estimates

Yum! Brands has delivered better-than-expected results for the eighth straight quarter when it reported third-quarter 2018 numbers.

Adjusted earnings of $1.04 per share surpassed the Zacks Consensus Estimate of 83 cents. Further, the bottom line increased 52.9% on a year-over-year basis. The shift to refranchising substantially bolstered the company’s operating margin and earnings per share.

Total revenues of $1,391 million were down 3.1% year over year but exceeded the consensus estimate of $1,380 million. The downside was mainly due to decrease in sales as an impact of the company’s continued refranchising initiatives.

In the third quarter, the company opened 410 net new units, reflecting 4% net new unit growth. Moreover, Yum! Brands refranchised 134 restaurants, including 57 KFC, 31 Pizza Hut and 46 Taco Bell units for pre-tax proceeds of $193 million.

Segmental Performance

Revenues from KFC totaled $649 million, down 18.3% on a year-over-year basis. Comps at this division increased 3% compared with the year-ago quarter’s rise of 4% and the last reported quarter’s increase of 2%. This segment’s operating margin was up 5.4% to 38.2% year over year, owing to refranchising and same-store sales growth.

At Pizza Hut, revenues amounted to $229 million, up 12% on a year-over-year basis. Comps were down 1% compared with the year-ago quarter’s increase of 1% and last reported quarter’s decline of 1%. The segment’s operating margin was down 1.8% year over year to 38.7%.

Taco Bell’s revenues were $513 million, up 16% from the year-ago quarter. Comps rose 5%, which compared favorably with the year-ago quarter’s growth of 3%. In second-quarter 2018, the segment’s comps gained 2%. Segment operating margin was down 180 basis points to 31.5% year over year.

Other Financial details

Cash and cash equivalents as of Sep 30, 2018, totaled $198 million compared with $1,522 million as of Dec 31, 2017. Long-term debt at the end of the reported quarter was $9,405 million compared with $9,429 million at the end of 2017. During the quarter under review, the company repurchased 6.3 million shares for $527 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Yum has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Yum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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