Yum! Brands misses on revenue, Pizza Hut sales slow while Taco Bell, KFC drive growth
Year to date, Yum! Brands stock is down nearly 6%.
Lower Pizza Hut sales took a slice out of Yum! Brands (YUM)'s Q3 earnings results.
The fast food conglomerate posted a beat on earnings per share but missed on revenue as it reported Wednesday morning before the market open. Pizza Hut's lackluster sales brought down numbers, but KFC and Taco Bell continue to drive sales for Yum! Brands.
Revenue came in lower than expected at $1.71 billion, compared to estimates of $1.77 billion, while adjusted earnings per share came in at $1.44, higher than Wall Street's expectation of $1.27.
In Q3, same-store sales increased 6%, led by KFC (up 6%) and Taco Bell (up 8%), both beating estimates. CEO David Gibbs called the two brands "twin growth engines ... with KFC showing broad-based strength across both developed and emerging markets."
The finger-lickin' chicken chain's performance in China, where it derives a quarter of its sales, continues to outperform. In Q3, total restaurant sales there were up 16% while they were flat in the US. Chicken nuggets introduced last summer were a hit this quarter, and the company plans to lean further into the boneless treats, Gibbs said on a call with investors.
Taco Bell continues to be strong in the US, as higher-income consumers trade down to cheaper eats when their wallets get tighter. "We see really consistent 2% to 3% transaction growth across all income levels," Gibbs said of the taco chain.
According to TD Cowen analyst Andrew Charles, the Volcano Menu, a 2000s throwback menu item that hit stores again in June, may have helped to drive orders as it was the second-most-requested historical item, after the Mexican Pizza.
Pizza Hut was a disappointment, with same-store sales up just 1% in the quarter, while the Habit Burger Grill division saw same-store sales decline 5%.
Year-to-date, shares of Yum! Brands are down nearly 6%, compared to the S&P 500's (^GSPC) gain of 8.5%.
The earnings rundown
Adjusted earnings per share: $1.44 versus $1.27 expected
Revenue: $1.71 billion versus $1.77 billion expected
Same-store sales growth: 6% versus 4.93% expected
In Q3, the company added 1,130 new locations for its brands. Digital sales — a key component to boosting loyalty programs — surpassed $7 billion in the quarter, making up 45% of total sales.
Prior to earnings, Baird analyst David Tarantino wrote Yum! Brands is "well positioned amid macro uncertainties" in a note to clients.
He added that it "can sustain solid franchisee-led unit growth ... which combined with YUM's strong brand portfolio should have resilience in a range of economic scenarios."
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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