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Why Is Yum (YUM) Down 3.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Yum Brands (YUM). Shares have lost about 3.9% in that time frame, outperforming 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 drivers.

YUM! Brands Q4 Earnings Surpass Estimates, Rise Y/Y

YUM! Brands, Inc. reported solid fourth-quarter 2022 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top and the bottom line increased on a year-over-year basis.

Earnings and Revenue Discussion

In fourth-quarter 2022, the company's adjusted earnings per share (EPS) came in at $1.31, surpassing the Zacks Consensus Estimate of $1.25. In the prior-year quarter, the company reported an adjusted EPS of $1.02.

Quarterly revenues of $ 2,019 million beat the consensus mark of $1,927 million. Also, the top line increased 6.8% year over year. The upside can be attributed to an increase in franchise and property revenues.

Worldwide system sales — excluding foreign currency translation — increased 8% year over year, with Taco Bell (rising 14% year over year), KFC (6%) and Pizza Hut (4%).

Divisional Performance

YUM! Brands primarily announces results under four divisions — KFC, Pizza Hut, Taco Bell and Habit Burger Grill.

For fourth-quarter 2022, revenues from KFC totaled $793 million compared with $794 million reported in the prior-year quarter. Comps in the division increased 5% year over year compared with 7% growth reported in the previous quarter.

The segment's operating margin increased 1,500 basis points (bps) year over year to 39%. In the quarter under review, KFC Division opened 997 gross new restaurants.

At Pizza Hut, revenues amounted to $288 million, up 3% year over year. Comps in the quarter increased 1% year over year compared with 3% growth reported in the prior-year quarter.

The segment's operating margin expanded 5300 bps year over year to 34.5%. Pizza Hut Division opened 571 gross new restaurants in the fourth quarter.
Taco Bell’s revenues were $766 million, up 12% from the year-ago quarter's levels. Comps in the segment increased 11% year over year compared with 8% growth reported in the year-ago quarter. Its operating margin increased 3200 bps year over year to 32.1%.

Taco Bell opened 253 gross new restaurants in the quarter under review.
In the fourth quarter, The Habit company sales amounted to $172 million compared with $131 million reported in the previous quarter. Comps in the division declined 1% year over year. In the quarter under review, the company opened nine gross new restaurants.

Other Financial Details

As of Dec 31, 2022, cash and cash equivalents totaled $367 million compared with $410 million on Sep 30, 2022. Long-term debt, as of Dec 31, 2022, stood at $11,453 million compared with $11,517 million as of Sep 30, 2022.

The company announced a hike in its quarterly dividend payout. The company raised the quarterly dividend to 60 cents per share (or $2.42 annually) from the previous payout of 57 cents (or $2.28 annually). The hiked dividend will be paid out on Mar 10, 2023, to shareholders on record as of Feb 22, 2023.

2022 Highlights

Total revenues in 2022 amounted to $6,842 million compared with $6,584 million in 2021.

Net Income in 2022 totaled $1,325 million compared with $1,575 million in 2021.

In 2022, diluted EPS came in at $4.51 compared with $4.46 reported in the previous year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Yum has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Yum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Yum belongs to the Zacks Retail - Restaurants industry. Another stock from the same industry, McDonald's (MCD), has gained 0.4% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.

McDonald's reported revenues of $5.93 billion in the last reported quarter, representing a year-over-year change of -1.4%. EPS of $2.59 for the same period compares with $2.23 a year ago.

McDonald's is expected to post earnings of $2.29 per share for the current quarter, representing a year-over-year change of +0.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for McDonald's. Also, the stock has a VGM Score of D.

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