Yum (YUM) Down 13.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Yum Brands (YUM). Shares have lost about 13.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Yum due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

YUM! Brands Q4 Earnings Miss, Revenues Top Estimates

YUM! Brands reported mixed fourth-quarter 2019 results, wherein earnings missed the Zacks Consensus Estimate but revenues beat the same. However, both the top and bottom lines improved year over year.

Earnings & Revenues

The company’s adjusted earnings of $1.00 per share missed the Zacks Consensus Estimate of $1.11. However, the bottom line surged 148% on a year-over-year basis. The shift to refranchising substantially bolstered the company’s operating margin and earnings per share. The trend is expected to continue in the coming quarters.

YUM! Brands’ total revenues of $1,694 million were up 9% year over year and surpassed the consensus estimate of $1,658 million. This upside can be attributed to increase in company sales as well as franchise and property revenues, and franchise contributions for advertising and other services.

Worldwide system sales — excluding foreign currency translation — increased 10% year over year, with KFC, Pizza Hut and Taco Bell growing 11%, 7% and 13%, respectively. The company also opened 1,029 net new units, reflecting unit growth of 4%.

Segmental Performance

YUM! Brands reports results under three segments — KFC, Pizza Hut and Taco Bell.

Revenues from KFC totaled $732 million, up 7% on a year-over-year basis. Comps at this division rose 3% from the year-ago quarter’s growth of 3% and the third quarter’s improvement of 3%.

This segment’s operating margin was up 180 basis points (bps) year over year to 39%, owing to refranchising and same-store sales growth. Unit growth also drove margins.

In the quarter under review, the segment opened 814 gross new restaurants.

At Pizza Hut, revenues amounted to $297 million, up 8% on a year-over-year basis. Comps were down 2% in the reported quarter. Notably, comps were flat in the in third-quarter2019.

The segment’s operating margin was down 290 bps year over year to 30.2% due to higher provisions for past owing to receivables and related higher G&A, partially offset by lower advertising spend.

Pizza Hut Division opened 431 gross new restaurants in the fourth quarter.

Taco Bell’s revenues were $665 million, up 11% from the year-ago quarter. Comps rose 4% in the reported quarter, down from the year-ago quarter’s growth of 6%. In third-quarter 2019, the segment’s comps gained 4% year over year. This segment’s operating margin was up 180 bps year over year to 33.7%.

Taco Bell recorded 191 gross new restaurants openings during the quarter.

Other Financial Details

Cash and cash equivalents as of Dec 31, 2019 totaled $605 million compared with $292 million on Dec 31, 2018. Long-term debt at the end of the reported quarter was $10,131 million compared with $9,751 million at 2018-end. During the reported quarter, the company repurchased 3.2 million shares for $103 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -10.6% due to these changes.

VGM Scores

At this time, Yum has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Yum has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.