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Yum Brands Profit Trails Some Estimates on Pizza Hut

Published on Jul 17 2014 7:51 AM in Restaurant

Yum Brands Profit Trails Some Estimates on Pizza Hut

Yum! Brands Inc., owner of the KFC and Taco Bell restaurant chains, posted second-quarter profit that trailed some analysts’ estimates as Pizza Hut sales fell.

Net income rose 19 per cent to $334 million, or 73 cents a share, from $281 million, or 61 cents, a year earlier, the Kentucky-based company said yesterday in a statement. While that matched the average of 22 analysts’ projections compiled by Bloomberg, some estimates were as high as 81 cents. Revenue gained 10 per cent to $3.2 billion, missing the $3.24 billion average estimate.

Yum, which in May said Greg Creed will take over as chief executive officer next year, has struggled to lure Americans to Pizza Hut as fast-casual chains expand. The company also is facing steep discounting from rivals including Domino’s Pizza Inc., which is selling $5.99 two-topping pies. Sales at Pizza Hut stores open at least 12 months fell 3 per cent in the quarter, while analysts estimated a 0.1 per cent gain, according to Consensus Metrix.

Pizza Hut’s stores are “pretty old, and they’re not necessarily seen as all that innovative,” Peter Saleh, an analyst at Telsey Advisory Group in New York, said before the earnings release. “They’ve been focusing their attention and their capital on China and other parts of the world.”

Yum reiterated its full-year forecast for at least a 20 per cent increase in profit per share, excluding certain items.

China Sales

Companywide same-store sale rose 15 per cent in China, compared with 9 per cent the previous quarter. Analysts estimated a gain of about 11 per cent, the average of 15 projections compiled by Consensus Metrix, a researcher owned by New Jersey-based Kaul Advisory Group.

After an investigation into the company’s supply chain and an outbreak of avian flu hurt sales in China last year, Yum has been trying to reassure customers that its food is safe to eat. The company gets about half its revenue from stores in China and is planning to open at least 700 new restaurants there this year.

Yum has more than 6,300 restaurants, including East Dawning and Little Sheep, in China. Same-store sales are considered an indicator of a retailer’s performance because they include only older, established locations.

Pizza Competition

Pizza Hut’s US competitors are expanding. Chipotle Mexican Grill Inc. invested in fast-casual restaurant Pizzeria Locale and is opening more locations. Buffalo Wild Wings Inc. last year invested in a pizza concept, PizzaRev. Other startups, including Blaze Pizza and MOD Pizza, are emerging.

Yum’s pizza chain earlier this week said it would sell new desserts including an eight-inch chocolate chip cookie. The dessert pie is similar to Papa John’s International Inc.’s mega-sized chocolate chip cookie, which was introduced in September.

Taco Bell’s same-store sales also trailed analysts’ estimates, gaining 2 per cent, less than the average projection for a 3.6 per cent increase. In March, the chain began selling breakfast fare, including waffle tacos, across the US. Today, it is scheduled to introduce a new Cantina Power protein menu in its US restaurants.

Bloomberg News edited by Hospitality Ireland

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