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What Drove Yum! Brands’ EPS in Q2 2018?

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Aug. 7 2018, Updated 6:32 a.m. ET

Second-quarter performance

Yum! Brands (YUM) posted EPS (earnings per share) of $0.97. However, removing special items, the company’s adjusted EPS stood at $0.82, a 20.6% increase from $0.68 in the corresponding quarter of the previous year. The EPS growth was driven by expansion in the EBIT (earnings before interest and tax) margin, a lower effective tax rate, and share repurchases in the last four quarters partially offset by a decline in revenue.

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Yum! Brands’ EBIT margin improved from 30.3% to 30.7% due to an increase in revenue from franchisees due to refranchising, lower litigation costs, and sales leverage from positive SSSG (same-store sales growth) partially offset by the adoption of a new revenue recognition standard and higher restaurant-level costs at Taco Bell. The company’s effective tax rate was 9.9% compared to 33.8% in the corresponding quarter of the previous year.

Yum! Brands repurchased ~27.6 million shares for $2.23 billion between the beginning of the third quarter of 2017 and the end of the second quarter of 2018. In the second quarter alone, the company repurchased 7.6 million shares for $643 million.

Peer comparisons

During the quarter, Domino’s Pizza (DPZ) posted EPS growth of 39.4%, while the EPS of Papa John’s (PZZA) is expected to fall by 17.2%.

Outlook

For the next four quarters, analysts expect Yum! Brands to post EPS of $3.48, which represents an increase of 3.6% from $3.36 in the corresponding four quarters of the previous year.

Next, we will look at Yum! Brands’ valuation multiple.

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