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Why Analysts Expect Yum! Brands’ EPS to Fall

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Apr. 25 2019, Updated 4:55 p.m. ET

Analysts’ EPS estimates

In the first quarter, analysts expect Yum! Brands’ (YUM) adjusted EPS to fall 10% YoY (year-over-year) from $0.90 to $0.81 due to lower revenue and a higher effective tax rate and interest expenses. However, some decline is expected to be offset by a wider EBIT (earnings before interest and tax) margin and share repurchases.

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Analysts expect Yum! Brands’ EBIT margin to improve YoY from 28.0% to 34.8%, boosted by increased revenue from its wider-margin franchise business and lower SG&A (selling, general, and administrative) expenses. They project interest expenses to amount to 9.3% of Yum! Brands’ total revenue in the first quarter, rising YoY from 7.8%. YUM’s effective tax rate for the quarter is expected to rise YoY to 20.3% from 14.3%.

The company repurchased 21.7 million shares for $1.87 billion between last year’s second and fourth quarters, bringing its share repurchase program to $1.1 billion by the end of 2018.

Peer comparison and outlook

During the first quarter, Domino’s Pizza’s (DPZ) EPS grew 10%, while Papa John’s (PZZA) are expected to fall by 52.2%. This year, analysts expect Yum! Brands’ adjusted EPS to rise 20.9% YoY to $3.83 from $3.17. The company expects adjusted EPS of $3.75, excluding the impact of one extra week in 2019, currency translation, and one-time items.

Dividends

On January 25, the company announced quarterly dividends of $0.42 per share, representing an annual payout of $1.68 per share. The company’s dividend yield was 1.63% on April 24, and its stock was trading at $103.34. Meanwhile, peers Domino’s Pizza and Papa John’s had dividend yields of 0.78% and 1.78%, respectively.

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