Yum! Brands, Inc. (YUM) on Q2 2021 Results - Earnings Call Transcript

Operator: Good morning, and welcome to the Second Quarter 2021 Yum! Brands, Incorporated Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I'd now like to turn the conference over to Jodi Dyer, Vice President of Investor Relations and CFO, Digital & Technology. Please go ahead. Jodi Dyer: Thanks, operator. Good morning, everyone, and thank you for joining us. On our call today are David Gibbs, our CEO; Chris Turner, our Chief Financial Officer; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from David and Chris, we'll open the call to questions. David Gibbs: Thank you, Jodi, and good morning, everyone. I'm excited to share our strong second quarter results as we delivered record second quarter unit development and 23% same-store sales growth. Importantly, each division reported positive same-store sales growth on a 2-year basis, a step-up from first quarter trends. This sustained momentum was underpinned by our investments in digital and off premise and the adaptability of our brands to meet the needs of consumers in an ever changing environment. Though COVID obviously creates a more challenged operating environment, our confidence is stronger than ever in our ability to navigate the resulting uncertainties and in the long-term growth potential of Yum!. As a result, we're reinstating our long-term growth algorithm with one important change, we are raising our previous guidance of 4% unit growth to between 4% and 5% unit growth. Chris Turner: Thank you, David, and good morning, everyone. Today, I’ll discuss our second quarter results, our unmatched operating capability, and Bold Restaurant Development growth drivers, and our solid liquidity and balance sheet position. To begin, let’s discuss Q2. Overall, Yum! system sales grew 26%, driven by 23% same-store sales growth. On a 2-year basis, same-store sales grew 4%, which includes the negative impact of about 1% of our stores being temporarily closed due to COVID as of the end of Q2 2021. We delivered 2% unit growth year-over-year, which included a Q2 record of 603 net new units. EPS, excluding special items, was $1.16, representing a 41% increase, compared to ex-special EPS of $0.82 in Q2 2020. Core operating profit grew 53% in the second quarter, driven by accelerated same-store sales growth in several developed markets at KFC, the combination of strong sales and restaurant margin growth at Taco Bell, and a year-over-year benefit associated with reserves for franchisee accounts receivable. At Taco Bell, company restaurant margins were 25.9%, 1.4 points higher than prior year. Favorable sales flow-through was partially offset by labor and commodity inflation, as well as increasing semi-variable costs as we return to normal operations. As mentioned on our previous call, we expect these margins to return closer to historical pre-COVID levels later this year given inflationary pressures, along with increased staffing at our restaurants as a result of increases in dining room patronage and a return toward our historical day part mix. During Q2, we continued to see recoveries of amounts past due, primarily led by KFC International. These recoveries resulted in a $4 million net benefit to operating profit related to bad debt during the quarter, representing a $17 million year-over-year tailwind to operating profit growth as we lapped $13 million of expense in Q2 2020. As a reminder, we ended 2020 with $12 million of full-year bad debt expense with large quarterly swings due to COVID. As such, we expect year-over-year operating profit growth to be negatively impacted in the second half as we lap bad debt recoveries of $21 million and $8 million in Q3 and Q4, respectively. While difficult to forecast, at this point, we still don’t expect bad debt to significantly impact our year-over-year operating profit growth on a full-year basis. General and administrative expenses were $230 million. Full-year 2021 G&A is expected to be back-end weighted, as it has been historically. We now estimate that our consolidated G&A expenses will be approximately $1 billion for the full-year 2021, a slight increase from our Q1 estimate attributable to increased incentive-based compensation. Our commitment to be an efficient growth company that leverages fixed costs with our unique scale benefits is unchanged and we expect our G&A to system sales ratio to move back toward our historic ratio as sustained growth continues. Reported interest expense was $159 million, an increase of 21% compared to Q2 2020, driven by a special item charge of $34 million related to early redemption of restricted group bonds during the quarter. Interest expense, ex-special, was approximately $125 million, a decrease of 5%, driven by recent refinancing actions and the elimination of revolver balances held in the prior year. We still expect our 2021 interest expense to be approximately $500 million, excluding the previously mentioned $34 million special item charge similar to 2020. We plan to continue to take advantage of favorable market conditions to refinance debt at attractive rates. As a reminder, this will result in higher one-time expenses that will be favorable to interest expense going forward. Capital expenditures, net of refranchising proceeds, were $16 million for the quarter. As we’ve discussed on prior earnings calls, we believe roughly $250 million in annual gross CapEx appropriately balances the inherent needs of the business, with opportunities to invest in technology initiatives and strategic development of equity stores. We still anticipate at least $50 million in annual proceeds from refranchising, which will fund the strategic equity store investments. As a reminder, for 2021, we may be slightly higher than the $250 million gross CapEx amount to catch up on repair, maintenance, and remodels, as well as selective strategic development in the U.S. Now, on to our unmatched operating capability growth driver. Our restaurants are operated by world-class franchisees who are experienced and competing and winning in any environment. It’s well known that the U.S. is facing a competitive labor market, which is more pronounced relative to other markets across our diverse global footprint. We and our franchisees are leaning into our unrivaled culture, which differentiates our brands to compete in a tight labor market with a focus on retention and recruiting. I’ll add some color by sharing examples from our Taco Bell company restaurants. I’ll start first with recruitment. We posted hiring parties, which have led to a significant uptick in employee hires. We also launched a fast apply option to make the application process easier and more efficient by reducing the application time from 8 minutes to 2 minutes. On the retention front, we’ve supported and rewarded our team members by offering a variety of incentives, including paid time off, free family meals, and increased employee development activities to name a few. We’ve always prioritized investing in our people and we recognize the importance now more than ever to ensure we maintain focus on our unmatched operating capability to deliver a RED customer experience. At the same time, our system is well-positioned to sustain strong unit economics while managing the inflationary environment related to labor market dynamics and commodity cost trends. On the commodity front, there is no one better equipped to navigate this environment, given our massive cross-brand purchasing scale through our domestic supply chain co-op RSCS that gives our franchisees many benefits, including advantaged end-to-end sourcing and supply chain costs. We are also confident in the pricing power of our brands and partner closely with our franchisees as they make strategic pricing decisions in their respective markets to deal with cost pressures, while still providing customers with relevant value and distinctive products. As David mentioned earlier, we are also prioritizing investments in restaurant technology initiatives that make it easier for our team members to operate a restaurant, while also providing an enhanced customer experience. As an example, Pizza Hut International continues to demonstrate significant momentum on this front, as evidenced by increased customer satisfaction metrics. Their improvements are fueled by continued adoption of frictionless restaurant technology, including our in-house intelligent coaching app called HutBot that launched at the end of 2020 and is now live in 40 markets, covering 4,000 restaurants. HutBot eases the daily management of our stores with the , leading to a better customer experience. At Taco Bell, we’ve continued excelling at serving more customers through our drive-thru’s. We had our sixth consecutive quarter of under 4-minute drive-thru order to delivery time. Speed for Q2 was 6-seconds faster than Q2 2020 and our teams served 4 million more cars compared to the same quarter last year. A huge shout-out to our operators and team members for continuing to break records in speed with the increased demand in off-premise. The drive-thru experience is an increasingly critical competitive advantage for our brands. So these improvements position us well to win going forward. That’s a perfect segue to our Bold Restaurant Development growth driver, which I’m particularly thrilled to speak about today. Our net new unit growth of 603 during the quarter was broad-based across brands and geographies, making this not only a record quarter, but also capping a record first half. These results speak to the strength of our iconic brands in growing food categories supported by a healthy, well-capitalized franchise system primed for sustained growth. Most notably, KFC opened 428 net new units during the quarter with significant builds in China, Russia, India, Latin America, and Thailand, contributing to 5% unit growth year-over-year. As many of you know, KFC has the first-mover advantage in several emerging markets with a strong domestic footprint upon which to grow. This impressive development quarter from KFC speaks to the power of this global brand and the unit economics that underpin it. Pizza Hut has sustained its positive 2021 development momentum, delivering 1% unit growth relative to Q1, underpinned by the strength in gross openings and moderating store closures. Pizza Hut opened 99 net new units during the quarter, led by strong development in China, India, and Asia. Taco Bell opened 74 net new units and we’re excited to share that Taco Bell International had its best development quarter ever, opening 30 net new units led by Spain and the U.K. In the U.S., we opened our flagship Taco Bell Cantina in Times Square, with a digital forward footprint and personalized experience. Overall, we are pleased with the momentum in the first half of the year and we’re extremely proud to announce 4% to 5% unit growth guidance, led by development from all four brands across our footprint. Next, I’ll provide an update on our balance sheet and liquidity position and priorities for capital allocation. We ended Q2 with cash and cash equivalents of approximately $552 million, excluding restricted cash. The strong recovery in EBITDA during Q2 drove our consolidated net leverage down to approximately 4.5 times, temporarily below our target of approximately 5 times. During the quarter, we repurchased 2.1 million shares, totaling $255 million at an average price per share of $119. Year-to-date, we’ve repurchased $530 million of shares at an average price of $112. Finally, our capital priorities remain unchanged, invest in the business, maintain a healthy balance sheet, pay a competitive dividend, and return the remaining excess cash flows to shareholders via repurchases. Overall, I’m extremely proud of our Q2 results, the resilience of our business model, and the agility of our teams. With that, operator, we are ready to take any questions. Operator: Thank you. Our first question comes from John Glass from Morgan Stanley. Please go ahead. John Glass: Thanks and good morning. Chris and David, I just wanted to, you know on your new unit development target, I’m wondering what signals you’re getting that prompted you to not only reinstate the guidance, but increase it from a pipeline perspective? What time frame is reasonable to expect? Could this become visible in 2022, for example? And just specifically on the KFC brand domestically, it’s doing very well on a same-store sales basis. I don’t think there’s been a lot of development, though, over the last several years. How do you think about domestic development specifically or generally playing into that? And the KFC brand, specifically, do you see opportunity here in the U.S. just given the repositioning of that brand? Thanks. David Gibbs: Thanks, John. Yes, obviously, we’re excited about net new development. And as you know, we do have a lot of visibility into the pipeline of our development because it takes about 12 months to plant the seed of development before you get the opening. So, we’re working with our franchise partners around the world to get that visibility, understand what’s coming down the pike, and that’s what gives us the increasing confidence, but really that all starts with the unit economics. When our unit economics are good, it’s an attractive proposition for our franchisees to build. You saw Yum! China last night talk about that. We’re seeing that in the vast majority of the world right now, which is what gives us the confidence to make that commitment to 4% to 5% net new unit growth. And just to clarify, that would apply to 2021, as well as 2022 and beyond. As far as domestically, we do think we’ve talked about this past on calls. We do think that there’s upside for KFC and Pizza Hut, particularly in the U.S. Taco Bell is starting to accelerate the development. So that went all – that trend is moving, but KFC and Pizza Hut haven’t historically been growing in the U.S., and we think there’s every reason in the world they should be net growers and they’re shifting into that in 2021 and we think that will continue. Operator: Our next question comes from Dennis Geiger from UBS. Please go ahead. Dennis Geiger: Great. Thanks for the question. Maybe just a follow-up on that impressive unit growth target acceleration, David and Chris. As it relates to kind of where that might be coming from, as you contemplated that acceleration, Chris, I think you spoke to all brands would be seeing the increase. Is it any in particular over the next few years or longer-term where you feel like you’re really seeing something interesting where one brand more so than others might be driving that acceleration, and how to think about the timing of that over the next few years perhaps, just curious if any additional insights to share there? Thank you. Chris Turner: Yes. Thanks, Dennis. Just to elaborate, our development engine is working and we expect it to work across all four of the brands, as David said. KFC has historically been our development leader. And if you look at what they did in Q2, it was very broad-based growth across a number of countries in the KFC system, I think north of 60 countries in the KFC system. And we expect them to continue to be the leader. But we have high expectations for the other brands. You’re seeing Taco Bell with strong domestic growth, but you also saw a strong international growth in Taco Bell development. And they are now back on track running ahead of where they were in 2019. We expect to get to 100 units, for example, in Spain this year and have other markets that are getting to scale. And then you’ve seen a market trajectory change in Pizza Hut. We took last year to drive our asset transformation strategy. We made some closures that helped accelerate that. And now you’ve seen the trajectory change and plus 99 in Pizza Hut this year. So, we have high expectations for growth across all the brands. Operator: Our next question comes from John Ivankoe from JPMorgan. Please go ahead. John Ivankoe: Hi. Thank you. I think these are all related questions. Just for clarification, I may have missed this or just didn’t catch it. Is there a quarter coming up maybe over the next eight or so, where you do expect to be in that 4% to 5% net unit growth? Your kind of parameter or goal that you’ve set out, I mean, if you can maybe point to a specific quarter that will get us all on the same page? And secondly, how many of the units that you are opening in 2021, whether you want to talk about the first half or you want to talk about the full-year, are units that are still catch-up units from 2020? In other words, you now is 2021 a year where it’s 2021 development and 2020 combined and 2022 doesn’t necessarily increase much from 2021, or am I thinking about that the wrong way that the actual development pipeline is so robust that 2022 development will exceed that of 2021? Thank you. David Gibbs: Thanks, John. And just to clarify, obviously when we report quarterly results that has the trailing 12 months in it, which we had some closures last year. So, when we’re talking about our 4% to 5% net new unit growth algorithm now, we’re talking on an annual basis starting in 2021. So that’s what we’re expecting for 2021, 2022, and beyond. As far as the second question on catch-up units, certainly, there were some units that were put on hold in 2020 that have opened in 2021, no doubt. And that’s helping us get to the number for 2021, because we had to restart the development engine. But by issuing the guidance on – as part of our long-term algorithm, we’re obviously clearly trying to signal that we think that will continue into 2022 with organic growth, again, based on the factors I mentioned earlier: strong unit economics, healthy franchisees. We’ve got strong brands all around the world, in general. Operator: The next question comes from Brian Bittner from Oppenheimer. Please go ahead. Brian Bittner: Thanks. Good morning. I’m going to ask my question on the KFC International business. When you adjust for the store closures, the two-year same-store sales for KFC International were positive. They turned positive in the quarter. This was despite what we heard from China last night, your largest international market, where sales do still remain below pre-COVID levels. So, can you again highlight where you are seeing this offsetting strength KFC International? And maybe, if possible, could you give us a glimpse of how those better markets are performing on a 2-year basis relative to the whole international business? David Gibbs: Yes. Great question. The KFC International business obviously showed quarter-over-quarter improvement in the 2-year trends which we are excited about and we think reflects the strength of the brand across its markets. You do see differences depending on the COVID situation in the state of each of those markets in that business. More developed markets where we’re seeing recovery advance are running further ahead where you’ve got more customer mobility and fewer restrictions on operating hours, those sorts of things for our restaurants, and where the footprint is more off-premise-ready. And so, if you look at markets like the U.K., for example, running incredibly strong, north of 40% growth in the quarter. The emerging markets have a bit of a longer tail on recovery. And so that’s what you’re seeing, but in general, great trend and improvement over the entire KFC International business. Operator: The next question comes from David Palmer from Evercore ISI. Please go ahead. David Palmer: Thanks. A question on digital sales. I think you mentioned that digital sales was up 35% in the quarter and that you believe it’s incremental. I’m wondering if that’s an interesting reason why multi-year growth might be higher coming out of COVID as the headwinds from COVID directly ease. For example, I think the digital order mix was 20 points higher at global KFC versus pre-COVID levels at least earlier in this year. So, I’m wondering what brands and maybe broken out by U.S. versus International, do you see the digital step-up proving to be the biggest help to multi-year sales growth in 2022 and beyond or whenever we finally have COVID headwinds ease? Thanks. David Gibbs: Yes. Thanks, David. I’m glad you asked about digital. Obviously, it’s something we’re really excited about as we are now on track for trailing 12-month $20 billion of digital sales. We’ve been making investments and developed a long-term strategy for how to win in digital for many years now. So this is starting to pay off, not something that happened overnight. You’ve seen us make investments in things like Quick Order, Quantum, Tictuk, Dragontrail now more recently, and then investments in people. So, this is something where we’ve been building up the capability in all aspects. We developed a road map to win in digital and now we’re implementing that, and it’s actually been accelerated by COVID. But it’s all the things that we were expecting to happen to the business are happening. It’s really hard to single out which part of the business is going to benefit most from digital, because all of our brands are very rapidly becoming digital brands. You’re seeing that in the numbers. Obviously, the brands like Pizza Hut that tend to – that started with a bigger digital base of customers, launched loyalty first. They’re getting a benefit because it’s central to what they do. But really on a growth basis, it’s the brands like our other brands that started up from a smaller base that are really getting a big benefit, and it is both the U.S. and an international play. It’s widespread and we do think it can fuel the business for a long time to come, part of the reason why we confidently reinstated our long-term growth algorithm. Operator: The next question comes from Jeffrey Bernstein from Barclays. Please go ahead. Jeffrey Bernstein: Great. Thank you very much. Just a question on the broader inflationary topic, which you mentioned in your prepared remarks. Clearly, the franchise model insulates corporate, which is a good thing. But I am just wondering how you think about the outlook maybe for the system in terms of both commodities and labor over the next 12 months or so? I’m assuming the pressure is outside and I was wondering how you respond in conversations with franchisees. I guess, qualitatively, whether you prefer to take the hit to margin or suggest they would take a hit to margin or are there maybe incremental cost savings or incremental menu pricing, maybe you can share the current pricing by brand to help us understand how the franchisees are managing? Thank you. David Gibbs: Yes. This is clearly a topic that is top of mind right now. We are seeing inflationary pressures primarily in the U.S., much more mark there than in our global footprint outside the U.S. represent 60% of our business. In the U.S., it is a topic that we and our franchisees are collaborating closely on. We are well-positioned to deal with this. First, when we had commodity inflation, as we mentioned in the remarks, we have greater purchasing scale than most players in the industry. RSCS, which leverages purchasing across the brands, gives our franchisees advantaged cost and negotiating capability from a sourcing standpoint. We are also seeing some wage inflation, as you mentioned. But when we think about dealing with both of those, the next lever that our franchisees and our brands pull is pricing. And so, we are confident that our brands have strong pricing power and our franchisees, who are the ones who actually make those decisions in their restaurants, are being very thoughtful about how to do that. They use analytics, they tend to layer these in over time, so that they don’t get too far ahead of the consumer. And our brands, obviously, are very smart about how they create mix in the menu. I would say, we’ve been very thoughtful and have increased pricing moderately across the brands in the U.S. to deal with this. But we’re confident in the ability to continue to pull those levers to deal with this tactfully. Operator: The next question comes from Jon Tower from Wells Fargo. Please go ahead. Jon Tower: Great. Thanks. I was just kind of following up on the question about digital and specifically how it ties into development. Is this higher digital mix that you’re seeing across your brands across the globe allowing you to, kind of penetrate in the markets and specifically urban versus suburban at a different rate than you had once thought? And specifically, how is the digital mix impacting the type of future development that you’re thinking for these brands, meaning, our footprint is a little bit smaller than you had previously thought, say, two to three years ago, because digital mix is higher. Just curious to get a little color there. David Gibbs: Yes. Look, digital is one of those things that had no downside. Obviously, the customers are – you have a better experience when it’s a digital experience. The average check is higher. There’s labor savings from processing orders on digital. So, the link to development is probably pretty – is pretty clear, right? It’s going to give you better unit economics when you have higher check and less labor associated with the check and stickier customers by the way. So, we do think digital as part of our upside for development as we go forward and you’re also seeing our brands develop new assets that take advantage of that, Taco Bell is best example of that, is the Taco Bell Go Mobile asset, which is, as you mentioned a smaller footprint, more on digital and should give our franchisees better unit economics. Obviously, this all starts and ends with franchisee unit economics, and to the extent that digital improves that, it’s going to drive development. Jodi Dyer: Operator, we have time for one more question. Operator: Okay. Our next question is from David Tarantino from Baird. Please go ahead. David Tarantino: Hi. Good morning. My question is on Pizza Hut, and I wanted to specifically ask about the transformation or asset transformation that you’ve been going through there. And whether your unit growth guidance now assumes that you’re largely completed with that transformation, the closings that would be tied to that? And then I guess secondarily, can you just kind of frame-up how you’re thinking about growth for that brand globally? Do you think Pizza Hut can get closer to your overall average on growth as you think about the next several years? David Gibbs: Yes. Thanks, David. The Pizza Hut strategy, as we’ve talked about over the last few years, has been to revitalize the brand and driving asset transformation. But it’s focused on a modern off-premise business. And through COVID, both Pizza Hut U.S. and Pizza Hut International has continued to drive progress on that front. If we take Pizza Hut U.S. specifically, if you saw last year that we drove a number of closures in the system that did move our mix of by a few percentage points. So, we’re continuing to make progress on that transformation. There is still further to go. So, we’re going to continue to drive that. But in terms of net unit count, you’ve seen a change in that trajectory. We were actually slightly positive this quarter in Pizza Hut U.S., which we think reflects the improved unit economics in the U.S. that stem from the strength of the brand. And then across both Pizza Hut U.S. and across Pizza Hut International, you’re continuing to see strong growth in off-premise, roughly 20% I think we were 18% in Pizza Hut U.S. on a 2-year basis and 21% in Pizza Hut International. So, we think the strategy is working. We think the brand is strengthening. Still more work to go on continuing to transition the asset base, but we’ve seen a change in trajectory on unit counts. I think with that, we’ll wrap up. I just want to thank everybody for the time on the call. And obviously, you sense that results are strong. But underlying those results, what’s really encouraging for us is that all four brands are performing well. You saw that on a global 2-year basis they were all positive. They were all positive on a global basis in the U.S. Those all four brands had improved trends from Q1, which really bodes well for the future. And a lot of it is being fueled by digital obviously with $5 billion of digital sales in the quarter and on-track for over $20 billion on an annual basis. But it’s not just the top line story, it’s also on the net new units side with 603 net units in the quarter, a record no matter how you slice it. And all of that obviously adds up to great confidence in the business and the way forward and which is why we reinstated our guidance and raised our net new unit target. We know we have a lot of work and a lot of exciting work ahead of us to continue to grow and accelerate the brands. The team is fired up for it and it’s a great quarter, but there’s a lot more to come. Thanks for your time, everybody. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Yum! Brands Inc. (NYSE:YUM) Maintains "Hold" Rating Amid Potential Golden Cross

  • Yum! Brands Inc. (NYSE:YUM) is a significant player in the fast-food industry, competing with giants like McDonald's and Burger King.
  • Loop Capital Markets has maintained a "Hold" rating for YUM, with a current stock price of $127.31.
  • YUM is nearing a potential Golden Cross, indicating a possible upward trend in its stock performance.

Yum! Brands Inc. (NYSE:YUM) is a global leader in the fast-food industry, owning popular chains like KFC, Pizza Hut, and Taco Bell. These brands are known for their wide range of menu offerings and global presence. Yum! Brands competes with other fast-food giants like McDonald's and Burger King, striving to maintain its market share and customer loyalty.

On January 8, 2025, Loop Capital Markets maintained its "Hold" rating for YUM, with the stock priced at $127.31. A "Hold" rating suggests that analysts believe the stock will perform in line with the market or its peers. This rating indicates that investors might not expect significant gains or losses in the near term.

YUM is nearing a potential Golden Cross, a bullish technical indicator. A Golden Cross occurs when a short-term moving average crosses above a long-term moving average, signaling a potential upward trend. This could suggest a positive turnaround in YUM's stock performance, attracting investor interest.

Currently, YUM's stock price is $127.66, a slight decrease of $0.89 or -0.69%. The stock has fluctuated between $127.01 and $128.23 today. Over the past year, YUM has seen a high of $143.20 and a low of $124.76, indicating some volatility in its stock price.

YUM's market capitalization is approximately $35.63 billion, reflecting its significant presence in the fast-food industry. With a trading volume of 397,096 shares on the NYSE today, investor activity remains steady. This level of trading volume suggests continued interest in YUM's stock, despite recent price fluctuations.

Yum! Brands Cut at Wells Fargo

Wells Fargo analysts changed their rating for Yum! Brands (NYSE:YUM) from Overweight to Equal Weight, adjusting the price target from $150.00 down to $135.00.

The analysts explained that the rationale for the downgrade is based on the assessment that the optimistic outlook for 2023, which was based on accelerating comparable sales, unit growth, and improving margins, has mostly materialized. Looking ahead to 2024, they anticipate challenges due to a comparatively high benchmark set by the previous year's performance, recent indicators of slowing momentum, and a less promising set of catalysts for 2024.

Despite acknowledging Yum! Brands' strong long-term growth drivers, the analysts foresee a potential slowdown in customer traffic, a moderation in pricing gains, and less likelihood of outperforming the company's 8% profit algorithm in 2024. Their earnings per share estimate for 2024 is slightly below the consensus, partly due to Yum! Brands' decision to halt share buybacks as it focuses on debt repayment.

Yum! Brands Cut at Wells Fargo

Wells Fargo analysts changed their rating for Yum! Brands (NYSE:YUM) from Overweight to Equal Weight, adjusting the price target from $150.00 down to $135.00.

The analysts explained that the rationale for the downgrade is based on the assessment that the optimistic outlook for 2023, which was based on accelerating comparable sales, unit growth, and improving margins, has mostly materialized. Looking ahead to 2024, they anticipate challenges due to a comparatively high benchmark set by the previous year's performance, recent indicators of slowing momentum, and a less promising set of catalysts for 2024.

Despite acknowledging Yum! Brands' strong long-term growth drivers, the analysts foresee a potential slowdown in customer traffic, a moderation in pricing gains, and less likelihood of outperforming the company's 8% profit algorithm in 2024. Their earnings per share estimate for 2024 is slightly below the consensus, partly due to Yum! Brands' decision to halt share buybacks as it focuses on debt repayment.

Yum! Brands Posts Q2 Beat

Yum! Brands (NYSE:YUM), renowned for its ownership of KFC and Taco Bell, reported Q2 earnings of $1.41 per share, outperforming the analyst consensus estimate of $1.24.

One of the highlights of the company's report was the impressive same-store sales growth of 9%. KFC, in particular, achieved remarkable same-store sales growth of 13%, standing out as the highest among YUM's brands. This growth was notably driven by KFC's stores in China, where same-store sales soared by 32% year-over-year.

On the other hand, Pizza Hut's same-store sales growth of 4% was deemed disappointing by investors, despite the notable 25% increase in China. Taco Bell also experienced a 4% increase in same-store sales.

Yum! Brands' Stock Drops 4% on Q1 EPS Miss

Yum! Brands (NYSE:YUM) plunged nearly 4% yesterday after the company reported its Q1 earnings results, with EPS of $1.06 coming in worse than the Street estimate of $1.13. Revenue was $1.65 billion, compared to the Street estimate of $1.62 billion.

The three largest brands delivered high-single-digit comp growth, with momentum carrying forward into Q2. However, higher-than-anticipated expenses weighed on margins and drove the EPS miss.

According to the analysts at RBC Capital, the headwinds are temporary and they expect the company to continue to post strong (over 20%) earnings growth for the balance of the year.

Yum! Brands Posts a Q4 Beat

Yum! Brands (NYSE:YUM) reported its Q4 earnings last week, with EPS of $1.31 coming in better than the Street estimate of $1.26. Revenue was $2.02 billion, beating the Street estimate of $1.92 billion.

Following the company’s December 2022 Analyst Day, investors have been given a clear roadmap for what to expect from a growth perspective in the coming years, and management's creditability around execution remains quite high.

Exiting the quarter, the analysts at Deutsche Bank don't expect to see much in the way of changes to the debate or to the broader discussion around the story. The analysts believe YUM continues to screen as one of the best-positioned names for this environment and over the long-term, and they continue to like the "defense + offense" combination that it offers to investors.

Yum! Brands 2022 Investor Day Review

RBC Capital analysts provided their views on Yum! Brands, Inc. (NYSE:YUM) following the company’s 2022 Investor Day, which largely met their expectations, particularly around unit growth.

The company introduced its new long-term guidance framework, including annual system-wide sales growth of over 7% (vs. prior mid-single to high-single-digits), driven in large part by an updated over 5% global net new unit growth target (vs. prior 4-5%).

The company’s management remains confident in the company's long-term unit growth potential, driven by both domestic and international growth across the company's portfolio of brands.

The analysts raised their fiscal 2023 EPS estimate to $5.30 from $5.14. As a result, their price target moved to $132 from $128, while the Sector Perform rating was reiterated.