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Yum Brands: Pizza Hut weighs on 3Q18 results

07 November 2018

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by Anchor

Yum Brands reported slightly better-than-expected results on Wednesday (31 October) with total revenue down 3% YoY to $1.39bn (from $1.44bn in 3Q17), but still beating Refinitiv consensus analysts’ estimates of $1.38bn. Net income for the quarter was $454mn, or $1.40/ diluted share, compared with $418mn, or $1.18/ diluted share reported in the year-ago period. Excluding one-time items, Yum earned $1.04/share in the third quarter, compared with $0.68/share a year ago, and above the Refinitiv consensus analysts’ forecast of $0.83/share.

Strong sales at KFC and Taco Bell more than made up for continued weakness at Pizza Hut. Taco Bell, which is Yum’s fastest-growing brand, launched $1 nacho fries and a $1 Triple Melt Burritos and nachos this year, driving same-restaurant sales up 5% YoY in 3Q18. Consensus analyst forecasts had expected a 3% YoY rise. The Taco Bell operating margin stood at 31.5%.

Same store sales at KFC rose by 3% YoY, also beating expectations of 2.13% growth, as strong performance in international markets (such as Russia, Thailand, the Middle East and India) boosted the results. KFC’s operating margin was 38.2%.

However, Pizza Hut continued to disappoint, with same-restaurant sales falling 1% YoY on the back of declines in the US, where Pizza Hut has been trying to turn itself around but faces intense competition. Its operating margin for the quarter came in at 31.5%.

Worldwide system sales (or sales from both company-owned or managed and franchised or licensed outlets), excluding foreign currency translation grew 5% YoY, with Taco Bell at 8%, KFC at 7%, and Pizza Hut flat YoY.

Yum Brands CEO Greg Creed commented that “core operating profit growth of 2% was consistent with our expectations. We are now two years into our three-year transformation and remain firmly on-track to becoming more focused, more franchised and more efficient.”

Yum opened 410 net new units for 4% YoY net new unit growth. The Taco Bell Division opened 59 gross new restaurants, including 22 international restaurants. The company also refranchised 134 restaurants, including 57 KFC, 31 Pizza Hut and 46 Taco Bell units.

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