North America

Earnings Preview: Yum! Brands Q1 2017 (YUM)

By: Craig Bowles

Overview

Yum! Brands, Inc. (YUM) is slated to report 1Q 2017 earnings before the open of trading on Thursday, May 4th. Results are expected to be released at approximately 7:00 a.m. ET followed by a conference call the following morning at 8:15 a.m. available through Yum Brands Investor Relations.  Yum! Brands operates quick service restaurants in the United States and internationally and is a component of the S&P 500. It operates in five segments: YUM Restaurants International, Taco Bell U.S., KFC U.S., Pizza Hut U.S., and YUM Restaurants India. The YUM China division was spun-off on November 1 and became Yum! China (YUMC).

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS) Excluding Items: The Street estimate is $0.60 (range $0.55 to $0.65) (Source: Yahoo! Finance). Consensus was $0.62 three months ago.
  • Revenues: Analysts expect $1.34 bln (range $1.30 bln to $1.42 bln).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2017: The current Street estimate is $2.72 (range $2.50 to $2.82).
  • Yum Brands has a P/E of 26.6 vs a 5-year average of 26.9; Price/Sales of 4.1 vs a 5-year average of 2.6; Price/Cash Flow of 21.9 vs a 5-year average of 16.3. Dividend Yield at 2.4% vs a 5-year average of 2.2%.
  • Analysts view Yum! with 10 (11 last qtr) Buy, 12 Hold, and 1 Sell ratings, according to MarketBeat.com.
  • Insiders sold 96,973 shares over the last three months and sold a net 654,999 shares in the past year. (source: NASDAQ.com) Yum! Brands stock buybacks are normally announced in Q4 and added $2 bln in November to May 2016’s $4.2 bln.
  • Yum! Brands results could impact other quick service restaurant companies, such as Papa John’s (PZZA), McDonald’s (MCD), and Wendy’s (WEN).
  • Yum! Brands shares have a 1-day average price change on earnings of 4.11%. Options are pricing in an implied move of 3.07% off earnings.

Recent News

  • 04/24: Cowen reiterated an Outperform rating on Yum! Brands following a detail update to model under company’s new reporting structure with China results in KFC and Pizza Hut segments released before company earnings, according to a post on StreetInsider.com.
  • 03/28: Yum Brands’ CEO Greg Creed believes that in a decade or so artificial intelligence could replace human workers in the food services industry, according to a post on TheStreet.com.
  • 03/10: Evercore ISI upgraded Yum! Brands to Outperform from In Line due to the recent pullback in the shares and solid visibility into multi-year earnings growth from factors like G&A reductions and share repurchases that occur regardless of operating performance, according to a post on StreetInsider.com.

Technical Review

Yum! Brands’ shares in 2017 have been finding resistance above $66 since May 2015 but we’re still in the seasonally strong first half of the year. Point and figure charts show a balance area around $64. (Chart courtesy of StockCharts.com)

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Summary

Yum Brands will restate its financial results and reclassify some non-service cost components of pension and post-retirement benefits. Yum is expected to return $7 billion to shareholders over the next few years. Insiders showed some selling recently with the stock testing above 2015 highs. The company beat/missed analyst consensus by an average of 5c over the past four quarters. Estimize consensus for EPS excluding items of $0.65 on revenue of $1.366 bln compares to analyst consensus of $0.60 on revenue of $1.34 bln.

 

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