LOUISVILLE, Ky. – Struggles within the company’s Pizza Hut business, particularly in the United States, weighed on full-year results at parent Yum! Brands Inc. in the year ended Dec. 31, 2019. The company’s share price was down as low as $101.08 on Feb. 7 after closing at $106.78 on Feb. 6, the day before earnings were announced.
Net income for the fiscal year ended Dec. 31, 2019, totaled $1.29 billion, equal to $4.23 per share on the common stock, down 16 percent from $1.54 billion, or $4.80 per share, in the previous year. The company recorded net refranchising gains of $37 million and a pre-tax investment expense of $77 million related to its investment in food delivery company Grubhub, which sustained a loss of $18.6 million for the year.
Revenues of $5.56 billion were down 2 percent from the year before. In constant currency, worldwide system sales grew 9 percent, with KFC at 10 percent, Taco Bell at 9 percent and Pizza Hut at 8 percent.
Fourth-quarter net income of $488 million, equal to $1.61 per share, was up 46 percent from $334 million, or $1.07 per share, in the prior-year period. During the quarter, the company recorded net refranchising gains of $19 million. Revenues totaled $1.69 billion, up 9 percent from $1.56 billion in the comparable quarter.
Worldwide system sales grew 10 percent, with Taco Bell at 13 percent, KFC at 11 percent and Pizza Hut at 7 percent.
Restaurant development was a strong driver of growth, said David Gibbs, CEO and director at Yum! Brands, during a Feb. 6 conference call with analysts. The company opened 9 gross restaurants per day on average and now has 287 brand country combinations.
“We accomplished this by opening a record 2,040 units, which represents a 70 percent increase versus 2016 when we began our transformation,” he said.
Taco Bell experienced its eighth consecutive year of positive same-store sales growth, driven by investments in off-premise capabilities and in-store technology, including the addition of digital kiosks at more than 6,000 locations. Strong fourth-quarter sales were driven by the new toasted cheddar chalupa, along with the return of the $5 nacho box and rolled chicken tacos, Gibbs said.
While sales at Pizza Hut International grew 13 percent during the fourth quarter, the chain continued to struggle in the United States. Sales were down 4 percent from the same period a year ago.
Opportunity exists for further improvements in carryout, delivery and value promotions, Gibbs said.
Efforts to turn around negative trends at Pizza Hut will be led by Kevin Hochman, former president of KFC US, who has been named interim president of Pizza Hut US.
“Kevin’s turnaround experience in both CPG and KFC US and his proven ability to improve distinctiveness of brands and accelerate innovation make him ideally suited for this opportunity,” Gibbs said.
The company will continue to consider new investments and partnerships in the year ahead, building off momentum from its acquisition of Habit Burger Grill, which is expected to close in the second quarter of 2020.
“It’s a small investment, but we’re buying something that has a lot of growth potential,” Gibbs said. “We’re not interested in buying big businesses that are of the same scale of ours that don't have a lot of growth.”
Looking ahead, the company warned its first-quarter results may be weighed down by the impact of the coronavirus outbreak in China.
Approximately 30 percent of Yum! China Holdings’ restaurants currently are closed.
“While Yum’s business model is highly diversified such that the impact on our financial performance won’t be as significant as what many companies will experience, this will certainly be a headwind for 2020,” Gibbs said.
System sales at Yum! Brands surpassed $50 billion in fiscal 2019. The year also saw another milestone with the opening of the company’s 50,000th restaurant.