Yum! Brands Reports Weaker Than Expected Quarterly Numbers

Yum! Brands, Inc. (Ticker Symbol: YUM) reported earnings last week that fell short of analysts’ expectations. The Louisville, Ken.-based company reported an earnings per share miss of .80 cents vs. Wall Street analysts’ expectations of .94 cents per share.  Additionally, Yum released a slight revenue miss reporting $1.339 billion vs. Wall Street analysts’ expectations of $1.344 billion.  

Earlier this year, Yum Brands invested $200 million dollars in the online ordering company GrubHub.  The company is using the investment to help grow the reach of its delivery network and generate more orders for its KFC and Taco Bell franchises.  The GrubHub investment hurt Yum’s earnings this quarter by .15 cents per share due to increased competition from UberEats, DoorDash, and Postmates that have put additional pressure on the business.  

Pizza Hut reported flat same-store sales growth for the quarter, which fell short of Wall Street analysts’ expectations of 1.5% growth.  Of Yum’s three major franchises, Pizza Hut seems to be struggling the most and announced last quarter that it could close up to 400 locations to restructure the franchisees’ businesses.  Pizza Hut is using GrubHub for online orders in over 700 locations, but Pizza Hut’s drivers still deliver the majority of the GrubHub orders.  

Kentucky Fried Chicken accounts for roughly 17% of Yum’s United States sales, saw same-store sales decline by 1% for the quarter.  This was led by a failed launch of the limited-time Cheetos Sandwich, which struggled to maintain a following. KFC did experiment with meatless nuggets and boneless wings which did well in a trial run in an Atlanta location.  

Taco Bell reported same-store sales growth of 4% vs. Wall Street analysts’ expectations of 3.5%.  Yum stated the Mexican fast-food chain saw its drive-thru times for customers to improve overall by 17 seconds for the quarter.   Taco Bell has been focusing on improving its customer’s drive-through times since earlier this year.  

The above image is a chart of Yum! Brands stock since the start of 2019.  The stock started off in 2019 positively, slowly drifting higher, and finding dynamic price support at its 100-day moving average.  Yum then proceeded to trader higher over the course of the next 10 months led by positive earnings and guidance reports in the second and third quarters that sent the stock on a 30% rally higher. The stock traded to an all-time high of $119.72 on August 1st, 2019.  Yum’s stock began to find resistance over the next month right around its all-time high and then began to turn lower. Yum found temporary price support at its 100-day moving average at the start of the fourth quarter. Currently, the stock is still positive for the year but trading below both its 100- and 200-day moving averages.  

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 11 analysts offering 12-month price targets, the average price target for Yum Brands stock is $119.45. According to that number, the stock is priced at a slight premium relative to Wall Street’s analysts and could be considered overvalued around current levels near $98.97. 

Investors in the company should look to Yum’s next earnings release on February 9th for fresh news within the business. 

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