Yum! Brands reports Q3 results as KFC growth offsets Taco Bell sales decline

What happened

Yum! Brands reported third-quarter adjusted earnings per share of $1.56, above the $1.51 analyst estimate but down 1% from a year earlier. Revenue was $2.06 billion, slightly below the $2.07 billion estimate. The company also completed the sale of its Pizza Hut businesses.

Confirmed

Global impact / market context

The Pizza Hut sale produced a large one-time gain, which means reported results look far stronger than ongoing operations. Excluding Pizza Hut, worldwide comparable sales were flat, so future profit depends more on opening new restaurants and growing KFC than on higher sales at existing stores.

Analyst inference

Investors are weighing mixed division results. KFC comparable sales rose 1% and its reported operating profit grew 9% to $425 million, while Taco Bell comparable sales fell 4% and its reported operating profit dropped 5% to $255 million. Digital sales above $9 billion, or 64% of the mix, show ordering is shifting online.

Analyst inference

What to watch

1. Taco Bell's U.S. comparable sales fell 4%, and its international figure was cut off in the article. Watch whether that decline continues, because Taco Bell is a major profit contributor. Confirmed
2. Watch whether Yum keeps opening restaurants at a similar pace. It added 955 gross new units, with KFC opening 878 across 66 countries, since new stores add sales and profit even when existing-store sales are flat. Proposed
3. Watch how much of the roughly $1.7 billion pretax Pizza Hut gain is returned to shareholders or reinvested in new stores, since that spending affects future revenue and profit per sale. Analyst inference

Evidence

• seekingalpha.com