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Factors Setting the Tone for Yum! Brands' (YUM) Q2 Earnings

Yum! Brands, Inc. YUM is scheduled to report second-quarter 2020 results on Jul 29. In the last-reported quarter, the company earnings were in line with the Zacks Consensus Estimate.

How Are Estimates Placed?

The Zacks Consensus Estimate for second-quarter bottom line is pegged at 50 cents per share, indicating a decline of 46.2% from earnings of 93 cents reported in the year-ago quarter. For revenues, the consensus mark stands at $1,168 million, suggesting a decrease of 10.9% from the year-ago figure.

Let's take a look at how things have shaped up in the quarter.

Yum Brands, Inc. Price and EPS Surprise

 

Yum Brands, Inc. Price and EPS Surprise

Yum Brands, Inc. price-eps-surprise | Yum Brands, Inc. Quote

Factors at Play

The coronavirus pandemic is expected to have materially affected Yum! Brands’ second-quarter performance. In May, KFC generated mid-teens same-store sales growth versus a decline of low-20s reported at first quarter-end. As of May 31, the metric grew mid-single digits.

Pizza Hut also delivered low-teens same-store sales growth in May. At March-end, the same fell in mid-teens. At the end of May, same-store sales were up in low-single digits. Particularly in delivery and carry-out-only restaurants, the same grew approximately 15% year over year. Taco Bell registered slight growth in May same-store sales against nearly 30% decline at the end of the first quarter. As of May-end, same-store sales declined high-single digits.

However, despite the improvement, the company is witnessing decline in traffic due to rise in COVID-19 cases as well as lower dining reopening. Notably, these are likely to get reflected in second-quarter 2020 results.

The Zacks Consensus Estimate for revenues at KFC, Pizza Hut and Taco Bell segments is pegged at $499 million, $223 million and $440 million, suggesting a year-over-year decline of 14.6%, 9.3% and 8.3%, respectively.

Moreover, the company has been increasingly focusing on delivery channels, which again is expected to have hurt margins in the second quarter. Also, costs related to transactions and franchises are expected to have shot up.

Nonetheless, continuous focus on online ordering and other digital platforms coupled with marketing and transition initiatives to an off-premise business model is likely to have aided the top line in the to-be-reported quarter.

What Our Model Says

Our proven model predicts an earnings beat for YUM! Brands this time around. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates.

Earnings ESP: YUM! Brands has an Earnings ESP of +14.46%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are some stocks from the Zacks Retail - Restaurants space that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

Papa John's International, Inc. PZZA has a Zacks Rank #1 and an Earnings ESP of +7.56%.

The Cheesecake Factory Incorporated CAKE has a Zacks Rank #3 and an Earnings ESP of +21.21%.

Brinker International, Inc. EAT has a Zacks Rank #3 and an Earnings ESP of +19.81%.

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