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Why Is Yum (YUM) Down 0.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Yum Brands (YUM - Free Report) . Shares have lost about 0.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Yum due for a breakout? 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 drivers.

Yum! Brands Q1 Earnings & Revenues Beat Estimates

Yum! Brands has delivered better-than-expected results in the first quarter of 2019.

Adjusted earnings of 82 cents per share surpassed the Zacks Consensus Estimate of 80 cents by 2.5%. However, the bottom line decreased 8% on a year-over-year basis. While the shift to refranchising substantially helped the company’s operating margin, pre-tax investment expenses negatively impacted earnings in the quarter under review.

Total revenues of $1,254 million were down 9% year over year but surpassed the consensus estimate of $1,247 million. This downside was caused by decreased sales, owing to the company’s continued refranchising initiatives.

Worldwide system sales, excluding foreign currency translation, grew 8%, with Taco Bell at 7%, KFC at 9% and Pizza Hut at 7% in the quarter under review. Also, the company opened 310 net new units, reflecting 7% unit growth.

Segmental Performance

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

Revenues from KFC totaled $566 million, down 14% on a year-over-year basis. Comps at this division increased 5%, higher than the year-ago quarter’s comps growth of 2% and the fourth quarter’s increase of 3%.

This segment’s operating margin was up 810 basis points (bps) to 41.7% year over year, owing to refranchising and same-store sales growth, partially offset by the negative impact of foreign currency translation.

At Pizza Hut, revenues amounted to $243 million, down 3% on a year-over-year basis. Comps remained flat compared with the year-ago quarter’s increase of 1%. Comps were also flat in the fourth quarter of 2018.

The segment’s operating margin was up 510 bps year over year to 40.1%, driven by refranchising, and lower franchise and property expenses due to lower advertising spend associated with the U.S. Transformation Agreement.

Taco Bell’s revenues were $445 million, down 4% from the year-ago quarter. Comps rose 4% in the reported quarter, which compared favorably with the year-ago quarter’s growth of 1%. In fourth-quarter 2018, the segment’s comps gained 6%.

This segment’s operating margin was up 250 basis points to 31% year over year.

Other Financial Details

Cash and cash equivalents as of Mar 31, 2019, totaled $278 million compared with $292 million as of Dec 31, 2018. Long-term debt at the end of the reported quarter was $9,736 million compared with $9,751 million at the end of 2018. During the quarter, the company repurchased 1.1 million shares for $106 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 a nice Growth Score of B, a grade with the same score on the momentum front. 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 indicates a downward shift. 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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