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Yum! Brands Stock Rose on Impressive Q2 Performance

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Aug. 1 2019, Updated 12:59 p.m. ET

Yum! Brands (YUM) reported its second-quarter earnings on Thursday. For the quarter ending June 30, the company reported an adjusted EPS of $0.93, which beat analysts’ estimate of $0.87. The company’s revenues were $1.31 billion—well above analysts’ expectation of $1.28 billion.

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Yum! Brands reported strong results

For the second quarter, Yum! Brands reported a global SSSG (same-store sales growth) of 5.0%, which beat analysts’ estimate of 3.1%. Also, the company’s three brands—KFC, Pizza Hut, and Taco Bell—beat analysts’ expectations. The impressive second-quarter performance appears to have led to a rise in Yum! Brands’ stock price. On Thursday, Yum! Brands was trading 3.5% higher in the pre-market trading hours.

Yum! Brands’ revenues fell

During the second quarter, Yum! Brands’ revenues fell 4.2% from $1.37 billion in the second quarter of 2018. The company’s revenues fell due to refranchising company-owned restaurants and unfavorable currency translation. However, the company’s revenues were driven by opening new franchised restaurants and positive SSSG in all three of its brands. For the quarter, KFC, Taco Bell, and Pizza Hut reported an SSSG of 6.0%, 7.0%, and 2.0%, respectively.

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Yum! Brands’ EPS rose

For the second quarter, Yum! Brands reported a diluted EPS of $0.92. However, removing special or one-time items, the company’s adjusted EPS was $0.93. Yum! Brands’ EPS grew 13.4% YoY from $0.82 in the second quarter of 2018. The company’s EPS increased in the second quarter due to the improvement in all three brands’ operating margins and share repurchases in the last four quarters. However, lower revenues, increased interest expenses, and a higher effective tax rate offset some of the gains in the EPS.

Yum! Brands’ operating margin improved due to growth in the franchise business. The franchise business grew due to refranchising and sales leverage from the positive SSSG. In the last four quarters, the company has repurchased 17.1 million shares for $1.54 billion. Share repurchases have lowered the company’s average number of shares outstanding to 314 million shares from 331 million. For the second quarter, the company’s effective tax rate was 23.7%—compared to 17.4% in the second quarter of 2018.

Outlook

Yum! Brands’ management expects its adjusted EPS to be $3.75 for 2019. The guidance represents a rise of 18.3% from $3.17 in 2018.

Domino’s Pizza reported its second-quarter earnings on July 16. To learn more about Domino’s second-quarter performance, read Domino’s Stock Falls on Weak Q2 Sales.

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