30 Oct

Yum! Brands Stock Falls, Misses Q3 Earnings Estimate

WRITTEN BY Sharon Bailey

So far, Yum! Brands (YUM) stock has fallen 8.5% as of 12:25 PM ET today. The company reported lower-than-expected earnings for the third quarter. Yum! Brands’ adjusted EPS of $0.80 lagged analysts’ forecast of $0.94. The company, which owns the KFC, Pizza Hut, and Taco Bell brands, reported revenues of $1.34 billion—in line with analysts’ expectations.

However, the top line has fallen 3.7% YoY (year-over-year). The company’s same-store sales rose 3.0%, which missed analysts’ expectations of a 3.3% same-store sales growth.

What impacted Yum! Brands’ Q3 results?

Overall, weakness at the Pizza Hut business hit Yum! Brands’ revenues in the third quarter. KFC and Taco Bell’s same-store sales increased 3% and 4%, respectively, in the third quarter. However, Pizza Hut’s same-store sales were flat YoY. Yum! Brands has been transforming Pizza Hut’s dine-in model to a quick delivery model. The transition will help Pizza Hut compete with rivals like Domino’s.

Currency headwinds and an unfavorable change in the value of Yum! Brands’ investment in GrubHub (GRUB) dragged down the company’s EPS by 23.1%. Notably, the change in the fair value of the GrubHub stake had a $0.15 negative impact on the third quarter EPS.

Yum! Brands bought a stake in GrubHub, a food delivery company, for $200 million in 2018. The company made the investment to boost its sales in KFC and Taco Bell restaurants. However, the increasing rivalry in the food delivery space from Uber Eats and DoorDash had a negative impact on GrubHub. On Tuesday, GrubHub stock fell more than 43%. The company issued a weak forecast for the fourth quarter.

Business improvements

Yum! Brands is investing in technology to elevate the consumer experience. In September, the company appointed Clay Johnson as its chief digital and technology officer. As a result, Yum! Brands expects to improve its digital commerce capabilities. The company will use data analytics and technology solutions to enhance its restaurant operations.

Changing industry dynamics and rising competition continue to impact Pizza Hut. Yum! Brands addressed the situation by restructuring Pizza Hut franchises and adding more value items on its menus. Yum! Brands focuses on innovation across its three brands. In August, KFC partnered with Beyond Meat (BYND) to test plant-based Beyond Fried Chicken in nuggets and boneless wings in one Atlanta location. Beyond Meat announced strong third-quarter results on Monday.

The growing interest in plant-based meat also led to a partnership between Pizza Hut and Kellogg (K). Pizza Hut agreed to test a plant-based pizza topping at one of its Phoenix locations. The new “Garden Specialty Pizza” contains Kellogg’s Incogmeato plant-based Italian sausage.

As of Tuesday, Yum! Brands stock has risen 19.4% year-to-date. So far, Starbucks (SBUX) stock has risen 30.6% this year. Notably, Starbucks will announce its fiscal fourth-quarter earnings after the markets close today. Analysts expect the company’s revenues to rise 6.0% to $6.68 billion. Starbucks’s adjusted EPS will likely grow about 13% to $0.70 in the fiscal fourth quarter.

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