Yum! Brands (YUM 0.48%), a global leader in the quick-service restaurant industry, has released its financial results for the third quarter of 2024 on November 5. The company reported adjusted earnings per share (EPS) of $1.37, falling short of analyst expectations which were set at $1.41 per share. Total revenue grew by 7% year-over-year, reaching $1.826 billion. Overall, the quarter presented a mixed performance with growth driven by digital sales and international expansion in key brands like Taco Bell and KFC, while challenges persisted, especially in Pizza Hut’s performance affected by geopolitical issues.
| Metrics | Current Period | Analyst Estimate | Prior Year Period | % Change (YoY) |
|---|---|---|---|---|
| Adjusted EPS | $1.37 | $1.41 | $1.44 | -5% |
| Total Revenue ($B) | $1.826 | -- | $1.708 | +7% |
| GAAP Operating Profit ($M) | $619 | -- | $613 | +1% |
| Core Operating Profit ($M) | $633 | -- | $614 | +3% |
Source: Analyst estimates for the quarter provided by FactSet.
Overview of Yum! Brands' Business
Yum! Brands operates over 58,000 restaurants in more than 155 countries through its key brands: KFC, Taco Bell, Pizza Hut, and the Habit Burger Grill. As a leader in the quick-service restaurant sector, the company emphasizes a franchise-based business model, which enables rapid expansion while minimizing direct operational risks. Approximately 98% of its restaurants are franchised, which contributes to a sustainable growth strategy.
In recent years, Yum! Brands has focused on digital transformation, increasing its digital sales significantly to constitute over 50% of its sales mix. The company's emphasis on technology integration, coupled with its “Recipe for Good Growth” strategy, underlines its commitment to expanding both its market presence and operational efficiency.
Quarterly Highlights
The recent earnings release for Q3 2024 highlighted several notable shifts within Yum! Brands' segments. KFC International saw an impressive 9% growth in new restaurant units, expanding in 65 countries. Despite robust unit expansion, KFC's same-store sales dipped by 4% due to geopolitical tensions in regions like the Middle East. Operational challenges were highlighted as adjusted for currency impacts, operating profit fell by 1%, with margins declining from 49.2% to 43.1%.
Taco Bell continued its strong performance, elevating system sales by 5% and operating profit by 11%. Its same-store sales growth in the U.S. reached 4%, driven by increased digital engagement and strategic unit expansion. This growth signifies Taco Bell's effective strategy in capitalizing on consumer trends.
Conversely, Pizza Hut struggled with a 4% drop in same-store sales, reflected in a 6% decline in operating profit. The European market performed weakly, with system sales slipping by 7%. Yum! Brands is reacquainting itself with growth opportunities amidst competitive and economic pressures in this division.
The Habit Burger Grill also faced challenges, reporting a 5% drop in same-store sales, primarily impacted by regulatory costs in California. Despite its relative infancy compared to other segments, these hurdles reflect the growing pains of a newer entrant grappling with external market factors.
Looking Ahead
The company remains committed to growth through its strategic objectives and digital integration. Although the current quarter showed a mixed picture, Yum! Brands has set a bold target for 8% core operating profit growth in 2024. CEO David Gibbs emphasized the strategic momentum by focusing on international expansion and digital transformation. This foresight highlights the company’s confidence despite external adversities impacting specific divisions.
Investors should keep an eye on the continued pace of digital sales adoption and franchise expansion as key growth indicators in the coming quarters. While no specific future guidance was shared, prior communications indicate optimism around strategic initiatives, aligning with a long-term vision for sustained growth and market leadership.
