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Yum! Brands 4Q18 earnings and revenue disappoint

Yum! Brands, the holding company for fast-food brands such as KFC, Taco Bell and Pizza Hut, reported 4Q18 results on Thursday (7 February), with both revenue and earnings coming in below expectations, despite the company reporting better-than-expected global same-store sales. Yum recorded revenue of $1.56bn (-1% YoY) vs the Refinitiv consensus estimate of $1.59bn, while earnings excluding special items came in at USc40/share (-58% YoY) vs the Refinitiv consensus forecast of USc0.95/share. The firm reflected the change in fair value of its investment in Grubhub by recording a $171mn pre-tax investment expense, resulting in the negative ($0.41) impact to EPS in the quarter.

Same-store sales, an important metric for restaurants, grew by 3% YoY overall vs an expected 2.5% YoY growth rate.

KFC, Yum’s largest brand, had another good quarter with same-store sales growing 3% YoY. In terms of markets with standout growth, Africa delivered 7% same-store sales growth, while China reported 3% same-store sales growth in the quarter. In the US, KFC ended 2018 with its fifth consecutive year of positive same-store sales growth. Over 1,500 new international KFC restaurants were opened in 87 countries in 2018.

Pizza Hut’s worldwide same-store sales were flat but, in the US, same-store sales grew 1% in the quarter. On the conference call, CEO Greg Creed noted that for both the US and the international business, “sustainable improvements in sales growth will remain a slow build as we update and reposition the asset base and make the messaging more distinctive.”

FY18 marked Taco Bell’s seventh consecutive year of positive same-store sales growth, which Creed described as “… once again outpacing the industry” and “a remarkable feat.” Worldwide same-store sales rose 6% YoY in 4Q18, above a Refinitiv estimate for a 4.35% YoY rise and its strongest growth in seven quarters.

During the quarter under review, Yum! refranchised 331 restaurants, including 227 KFC and 104 Taco Bell units, for pre-tax proceeds of $380mn and recorded net refranchising gains of $255mn in special items. As of its fourth-quarter end, the firm said its global franchise ownership mix increased to 98%.

In terms of its goal to return $6.5bn-$7bn of capital to shareholders over a three-year period (2017 to 2019), the firm said it remains “firmly on track.” During 2018, Yum repurchased 28mn shares for $2.4bn at an average price of less than $85/share. When combined with dividends, the company said it has already returned $5.2bn through the first two years of this programme.

“I am very proud of what we have been able to accomplish in just two short years since we announced the transformation of Yum!” Creed said in a statement. “Focus on our four growth drivers, increased collaboration and a new mindset are fueling strong results”, he added.

Looking ahead, Yum! provided EPS guidance of $3.75 for FY19, below the Refinitiv consensus estimate of $3.81.



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