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YUM! Brands' (YUM) Stock Down on Q3 Earnings & Revenues Miss

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YUM! Brands, Inc.’s (YUM - Free Report) shares declined 4.5%, following its third-quarter 2019 earnings release. The company’s top and bottom lines lagged analysts’ expectations, and declined on a year-over-year basis, thanks to a write down in the value of its investment in GrubHub Inc.

Notably, YUM! Brands had purchased a stake in GrubHub last year to boost sales at KFC and Taco Bell restaurants in the United States.

Earnings & Revenues

Its adjusted earnings of 80 cents per share missed the Zacks Consensus Estimate of 94 cents by 14.9%. Also, the bottom line declined 23.1% on a year-over-year basis. The company recorded $60 million of pre-tax investment expense related to the change in fair value of its investment in Grubhub. This resulted in a negative impact of 15 cents on EPS. When coupled with $94 million of pre-tax investment income recorded in the year-ago quarter, the company’s Grubhub investment unfavorably impacted EPS growth by 37 cents on a year-over-year basis.

Its total revenues of $1,339 million were down 4% year over year and missed the consensus estimate of $1,345 million by 0.5%. This downside was caused by a decline in sales, owing to continued refranchising initiatives.

Worldwide system sales — excluding foreign currency translation — increased 8% year over year, with KFC, Pizza Hut and Taco Bell growing 8%, 7% and 7%, respectively. Also, the company opened 389 net new units, reflecting 7% unit growth.

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

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

Yum! Brands, Inc. price-consensus-eps-surprise-chart | Yum! Brands, Inc. Quote

Segmental Performance

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

Revenues from KFC totaled $609 million, down 6% on a year-over-year basis. Comps at this division rose 3% from the year-ago quarter’s growth of 3% and the second quarter’s gain of 6%.

This segment’s operating margin was up 610 basis points (bps) year over year to 44.3%, owing to refranchising and same-store sales growth. Unit growth also facilitated its margins.

In the quarter under review, the segment opened 411 gross new restaurants in 52 countries.

At Pizza Hut, revenues amounted to $241 million, up 5% on a year-over-year basis. Comps were flat with the year-ago quarter’s decline of 1%. Comps growth was 2% in the second quarter of 2019.

The segment’s operating margin was down 270 bps year over year to 36% due to higher provisions for past owing to receivables and related higher G&A, partially offset by lower advertising spend associated with the U.S. Transformation agreement.

Pizza Hut Division opened 205 gross new restaurants in 43 countries in the third quarter.

Taco Bell’s revenues were $489 million, down 5% from the year-ago quarter. Comps rose 4% in the reported quarter, comparing unfavorably with the year-ago quarter’s growth of 5%. In second-quarter 2019, the segment’s comps gained 7% year over year.

This segment’s operating margin was up 140 bps year over year to 32.9%.

Taco Bell recorded 67 gross new restaurants openings in 13 countries during the quarter.

Other Financial Details

Cash and cash equivalents as of Sep 30, 2019 totaled $691 million compared with $292 million on Dec 31, 2018. Long-term debt at the end of the reported quarter was $10,491 million compared with $9,751 million at 2018-end. During the quarter, the company repurchased 1.5 million shares for $174 million.

2019 Guidance

The company expects adjusted EPS to be at least $3.75 for the year.

Zacks Rank & Peer Releases

YUM! Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Domino's Pizza, Inc. (DPZ - Free Report) reported mixed third-quarter 2019 financial numbers, wherein earnings surpassed the Zacks Consensus Estimate but revenues were almost in line with the same. Notably, this marked the company’s third straight quarter of earnings beat.

McDonald's Corporation (MCD - Free Report) reported third-quarter 2019 results, wherein earnings and revenues missed the Zacks Consensus Estimate. The bottom line also declined 2% from the prior-year figure.

Chipotle Mexican Grill, Inc. (CMG - Free Report) reported third-quarter 2019 results, wherein earnings and revenues surpassed the respective Zacks Consensus Estimate. While the bottom line beat the consensus estimate for the eighth straight quarter, the top line outpaced the same for the fourth consecutive quarter.

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