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What Analysts Expect from Yum! Brands’ Revenue in 3Q16

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Sep. 29 2016, Updated 4:04 p.m. ET

Revenue sources

Yum! Brands (YUM) earns its revenue from company-owned restaurants and franchised restaurants. In 2Q16, the company earned 84.9% of its revenue from company-owned restaurants and 15.1% from franchised restaurants.

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3Q16 revenue estimates

Analysts are expecting YUM to post revenue of $3.5 billion in 3Q16, representing a rise of 1.7% from $3.4 billion in 3Q15. The rise in revenue is expected to be driven same-store sales growth and unit growth.

Compared to 3Q15, YUM operated 1,780 more restaurants at the end of 2Q16. Analysts expect the company to add more restaurants in 3Q16, which should raise its revenue. Analysts also expect all three of YUM’s brands to post positive same-store sales growths, contributing to a rise in its revenue. We’ll discuss same-store sales growth further in our next article.

Refranchising and the strengthening of the US dollar due to the Brexit vote are expected to offset some of the company’s revenue growth. With the goal of converting 96% of its restaurants into franchised locations by the end of 2017, the company has been refranchising its company-owned restaurants.

Peer comparison

Peers Domino’s Pizza (DPZ) and Papa John’s (PZZA) are expected to post year-over-year revenue rises of 11.7% and 7.6%, respectively, in 3Q16.

What’s the outlook?

Analysts expect YUM to post revenues of $4.1 billion, $2.7 billion, and $3.0 billion in 4Q16, 1Q17, and 2Q17, respectively, representing year-over-year rises of 4.6%, 2.1%, and 0.9%, respectively.

These estimates include the revenue generated from YUM’s China operations, which YUM is expected to spin off effective October 31, 2016. YUM’s revenue is expected to be driven by positive same-store sales growth and the addition of new franchised restaurants.

Next, we’ll look at Yum! Brands’ same-store sales growth. Together with McDonald’s (MCD) and Starbucks (SBUX), YUM forms 6.5% of the holdings of the iShares U.S. Consumer Services ETF (IYC).

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