Sales take a tumble at Yum!

by Monica Watrous
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Taco Bell beef crunch wrap
“Taco Bell is firing on all cylinders," Greg Creed, CEO of Yum! Brands, said.

LOUISVILLE, Ky. — Profit tumbled 30 percent for Yum! Brands, Inc. in the recent quarter, but the parent company of Pizza Hut, Taco Bell and KFC expects to deliver double-digit earnings per share growth for the full year. Foreign exchange headwinds and a slower-than-expected recovery in China following a food safety scare led to a 3 percent decline in revenues.

“EPS in the second quarter, while below prior year, exceeded our original expectations,” CEO Greg Creed said during a July 15 earnings call with financial analysts. “I am encouraged by the progress we have made and have every reason to believe we will deliver a strong second half and full-year EPS of at least 10 percent.”

For the quarter ended June 13, Yum! had net income of $235 million, equal to 54 cents per share on the common stock, which compared with $334 million, or 75 cents per share, for the prior-year period. Excluding a special charge related to a refranchising loss, earnings per share fell 5 percent for the quarter.

Total revenues were $3,105 million for the quarter, which compared with $3,204 million the year before.
“Overall, I would summarize our second-quarter performance as very similar to our first-quarter results,” Creed said. “Taco Bell is firing on all cylinders. KFC delivered another solid quarter. China continues to improve. And while we are making progress, there is still much work to be done at Pizza Hut.”

But while executives during the conference call expressed confidence in the company’s growth forecast, investors were less than bullish. Yum! Brands’ share price on the New York Stock Exchange fell nearly 3 percent to $88.88 on July 15, down $2.70 from the previous close of $91.58.

For the second quarter, KFC Division system sales fell 4 percent, but rose 6 percent excluding the impact of foreign currency exchange. Revenues for the segment totaled $694 million, down 8 percent from $754 million the year before. Operating profit fell 2 percent to $152 million. With 90 percent of division profits generated in international markets, foreign currency translation had an unfavorable impact on profit of $19 million.

Pizza Hut meatball pizza
In the Pizza Hut Division, system sales fell 3%.

 
In the Pizza Hut Division, system sales fell 3 percent, or rose 1 percent excluding foreign currency exchange, reflecting 2 percent unit growth and flat same-store sales. Revenues for the quarter totaled $264 million, down 0.3 percent from the prior year. Operating profit declined 4 percent to $60 million, reflecting the negative impact of foreign currency translation by $2 million.

“I firmly believe Pizza Hut has enormous potential that recent results do not reflect,” Creed said. “We are intently working to become more competitive. Turning around these results will not happen overnight, but through our focus on value, our assets, digital and messaging, we are relentlessly working on realizing the full potential of our brand.”

System sales for the Taco Bell Division increased 9 percent, driven by 3 percent unit growth and 6 percent same-store sales growth. Revenues advanced 8 percent to $476 million. Operating profit grew 29 percent to $140 million.

“Taco Bell’s goal is to be America's favorite millennial brand, and we are making substantial strides to deliver on that aspiration,” Creed said, citing the chain’s recent expansion of delivery testing in select locations.

“I’m delighted with the strong initial test results, and this is just another example of Taco Bell proving it is on the cutting edge of QSR,” Creed said.

China Division system sales fell 4 percent, as 7 percent unit growth was offset by a 10 percent same-store sales decline. Total revenues fell 4 percent to $1.636 billion from $1.709 billion. Operating profit for the quarter fell 26 percent to $144 million, which included a negative impact of $1 million from unfavorable currency translation.

“I think the good news is that sales are recovering,” Creed said. “We went from minus-12 percent to minus-10 percent, despite a more difficult lap of plus-15 percent. The good news is that the consumer metrics are improving, trending in the right direction. As always, these are never linear, unfortunately, but we do know that when we compare this to previous recoveries we’re going in the right direction, making progress across the board. So, I feel good, and we remain obviously bullish on China.”

System sales for the India Division were flat prior to foreign currency translation, as an 11 percent decline in same-store sales offset 16 percent unit growth. Revenues slipped 0.5 percent to $35 million from $37 million for the year-ago quarter. Operating loss was $3 million, compared with a loss of $1 million the year before.

“I think we remain very bullish on India in the long term,” Creed said. “There’s no reason not to. There’s massive population and urbanization of that population, and there’s obviously underlying economic growth.”

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