Yum! Brands (YUM) earns its revenue from company-owned restaurants and franchised restaurants. After the spin-off, revenue from franchised restaurants is expected to rise, as the company will receive 3% of sales from its China operations as a license fee. In 3Q16, the company earned 85.7% of its revenue from company-owned restaurants and 14.3% from franchised restaurants.
4Q16 revenue estimates
Analysts are expecting Yum! Brands to post revenue of $2.0 billion in 4Q16, which represents a fall of 48.4% from $3.95 billion in 4Q15. The decline is largely due to the spin-off of its China operations. Also, with the intention of increasing franchised restaurants to 98% by the end of 2018, the company has been selling its company-owned restaurants to franchisees, which could have also contributed to a decline in its 4Q16 revenue.
However, analysts expect the strong same-store sales growth (or SSSG) of Taco Bell and KFC in 3Q16 to continue in 4Q16 as well. The Taco Bell’s SSSG is expected to be driven by $1 all-day breakfast menu, $1.49 Steak Flatbread Sandwiches, and $5 boxes. The brand had announced to add 300 new restaurants in 4Q16. Moving to KFC, the Extra Crispy campaign, and value offerings are expected to drive KFC’s SSSG in 4Q16. All these factors are expected to offset some of the declines in 4Q16 revenue.
For the next four quarters, analysts are expecting Yum! Brands to post revenue of $6.1 billion, which represents a fall of 52.7% from the corresponding quarters of the previous year. The spin-off of its China operations and refranchising could have prompted analysts to lower their revenue forecast.
Next, we’ll look at Yum! Brands’ 4Q16 EBIT margins.