For Yum! Brands, two out of three isn't bad

by Monica Watrous
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Yum! Brands restaurants
Yum! Brands posted solid results for two of its three brands in the recent quarter.

LOUISVILLE, KY. — In what has been an overall sluggish environment for the quick-service restaurant category, Yum! Brands, Inc. posted solid results for two of its three brands in the recent quarter, said Greg Creed, chief executive officer.

Net income in the third quarter ended Sept. 3 totaled $622 million, equal to $1.59 per share on the common stock, up 48% from $421 million, or 97c per share, in the prior-year period. Excluding special items, earnings per share grew 9%. Total revenues fell 3% to $3,316 million from $3,427 million.

Performance reflected positive momentum at KFC and Taco Bell that offset continued weakness at Pizza Hut.

Greg Creed, Yum! Brands
Greg Creed, c.e.o. of Yum! Brands

“I think the fundamentals of what Q.S.R. offers, which is always convenience and value, will always be there,” Mr. Creed said during an Oct. 6 earnings call with financial analysts. “And… in any market, strong markets or sluggish markets, there will always be winners and losers. And I think having the right tactics in order to ensure that you win is what’s critical. And, obviously, in the quarter two of the brands delivered, and we’ve got lessons from that. And I’m very confident that we can continue to apply those lessons to KFC and to Taco Bell and we can apply those lessons to Pizza Hut.”

During the quarter, KFC Division system sales increased 7%, excluding foreign currency translation, with same-store sales up 4% and U.S. same-store sales growing 6%.

KFC Extra Crispy chicken, Yum! Brands
KFC's Extra Crispy campaign helped sales growth for the restaurant.

Yum! Brands, Inc. posted solid results for two of its three brands in the recent quarter, said Greg Creed, chief executive officer.

Pizza Hut Division system sales were flat with the year-ago period, as same-store sales fell 1% and U.S. same-store sales declined 2%.

“The U.S. market was influenced by an unsuccessful promotion and the competitive environment,” Mr. Creed said. “As we saw earlier this year we know the brand can perform when the right product is combined with compelling value and the messaging is distinctive and disruptive. Now I am confident in our ability to turn around the Pizza Hut U.S. business. We believe the fundamentals are being put in place and now execution is the focus.”

Pizza Hut Grilled Cheese Pizza, Yum! Brands
Pizza Hut Division system sales were flat with the year-ago period.

Taco Bell Division system sales grew 5%, excluding foreign currency translation, with same-store sales up 3%.

“Our strategy of bracketing value with $1.49 steak flatbread sandwiches and $5 boxes, which provided abundant value, allow us to grow transactions and boost check,” Mr. Creed said. “Furthermore, we saw impressive results with our breakfast offering in the quarter as transactions grew 14%, driven by our $1 breakfast menus.

“We are now taking the learnings from this success and promoting our alternate dollar menus. This all goes to show that when you remain committed to the core and value the results follow. In addition to being a clear leader in offering low prices we are now leading the category in good value for money.”

Taco Bell flatbread sandwich,  Yum! Brands
Taco Bell grew transactions with value options such as $1.49 steak flatbread sandwiches.

The company’s China Division’s performance was hurt by regional protests and negative sentiment following an international court ruling on claims regarding the South China Sea. System sales increased 3% during the quarter, excluding foreign currency translation, while same-store sales decreased 1%.

The company is on track to finalize its China separation with Yum China Holdings, Inc., which is expected to begin trading on Nov. 1 on the New York Stock Exchange under the ticker symbol “YUMC.”

“Following the separation we will be roughly 93% franchised with a clear path to reach our stated goal of becoming at least 96% franchised by the end of 2017,” Mr. Creed said. “We’ve given a great deal of thought toward creating a high-growth, asset-light efficient company best positioned for accelerating growth in global system sales, operating profits and cash flow.” 

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READER COMMENTS (1)

By Larry Davis 10/10/2016 2:49:03 PM
Yum Foods is bragging about the KFC brand. How come there use to be 8 stores in the Little Rock market and now there is only one. I know why. There is still a KFC sign standing in front of a closed KFC store in Little Rock.