North America

Earnings Preview: Yum! Brands Q2 2017 (YUM)

By: Craig Bowles

Overview

Yum! Brands, Inc. (YUM) is slated to report 2Q 2017 earnings before the open of trading on Thursday, August 3rd. 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).

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS) Excluding Items: The Street estimate is $0.61 (range $0.57 to $0.65) (Source: Yahoo! Finance). Consensus was $0.61 three months ago.
  • Revenues: Analysts expect $1.42 bln (range $1.36 bln to $1.45 bln).
  • Yum Brands has a P/E of 27.5 vs a 5-year average of 26.9; Price/Sales of 4.5 vs a 5-year average of 2.6; Price/Cash Flow of 24.3 vs a 5-year average of 16.3. Dividend Yield at 1.9% vs a 5-year average of 2.2%.
  • Analysts view Yum! with 11 Buy, 14 Hold, and 0 (1 last qtr) Sell ratings, according to MarketBeat.com.
  • Insiders sold 38,080 shares over the last three months and sold a net 309,882 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), Domino’s Pizza (DPZ), McDonald’s (MCD), and Wendy’s (WEN).
  • Yum! Brands shares have a 1-day average price change on earnings of 3.79%. Options are pricing in an implied move of 3.89% off earnings.

Recent News

  • 07/18: Pizza Hut is hiring 14,000 new delivery drivers as it tries to become the Pizza King again, according to a post on TheStreet.com.
  • 06/26: Yum Brands sold of 28 KFC eateries across Tasmania to Collins Foods, according to a post on MarketWatch.com.
  • 06/08: Mizuho Securities initiated coverage on Yum! Brands with a Neutral rating as the company is in the late innings of the transition with an uphill battle for justifying further multiple expansion, according to a post on StreetInsider.com.
  • 05/30: Cowen maintained an Outperform rating on Yum! Brands after Taco Bell’s investor day reinforced their confidence in their above-consensus long term comp estimates, while they believe 2Q is also trending well, according to a post on StreetInsider.com.
  • 05/26: Oppenheimer maintained an Outperform rating on Yum! Brands following Taco Bell management meetings. With Taco Bell making up 1/3 of YUM’s profits, the segment as a powerful catalyst to achieving an above-Street earnings power view, according to a post on StreetInsider.com.

Technical Review

Yum! Brands’ shares in 2017 finally pushed through the 2015/16 $66 resistance area in the seasonally strong first half of the year. Point and figure charts show the trend at $66. (Chart courtesy of StockCharts.com)

Summary

Yum Brands is led by Taco Bell and KFC while Pizza Hut struggles with intense competition. KFC’s fried chicken apparel seems like a reach. Yum is expected to return $7 billion to shareholders over the next few years. Insider selling has lightened up the past three months and that probably helped allow the stock to move higher. The company beat/missed analyst consensus by an average of 3c over the past four quarters. Estimize consensus for EPS excluding items of $0.63 on revenue of $1.412 bln compares to analyst consensus of $0.61 on revenue of $1.42 bln.

 

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