Yum! Brands, Inc. YUM is slated to release third-quarter 2024 results on Nov. 5, before the opening bell.
In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 2.3%. YUM surpassed earnings estimates in two of the trailing four quarters and missed twice. The average surprise in this period is 0.8%, as shown in the chart below.
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YUM’s Q3 Estimate Revisions
The Zacks Consensus Estimate for third-quarter earnings per share (EPS) has declined to $1.41 from $1.42 in the past 30 days. The projected figure indicates a 2.1% drop from the year-ago EPS of $1.44. The consensus mark for revenues is pegged at $1.89 billion, indicating 10.6% year-over-year growth.
What the Zacks Model Unveils for YUM
Our proven model doesn't conclusively predict an earnings beat for Yum! Brands this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here.
YUM’s Earnings ESP: Yum! Brands currently has an Earnings ESP of +0.61%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank of YUM: The company carries a Zacks Rank #4 (Sell) at present.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Influencing YUM’s Q3 Performance
YUM's top line in third-quarter 2024 is likely to have been aided by expansion efforts domestically and internationally. The stellar performance of its flagship brand, KFC, is expected to have driven the company’s top line.
Yum! Brands’ consistent focus on affordable and unique menu items bodes well. For example, Taco Bell's Cravings Value Menu and promotional items like Cantina Chicken offer value-driven options. This appeals to cost-conscious customers. Moreover, the company’s integration of a recommended ordering system powered by AI and machine learning is anticipated to have a positive impact on its operational efficiency and customer experience.
Our model predicts KFC, Taco Bell and Habit Burger third-quarter 2024 revenues to increase 8.3%, 9% and 21.6% from the year-ago levels to $757.3 million, $685.8 million and $166.6 million, respectively. We expect Pizza Hut's revenues to increase 3.4% from the prior-year levels to $250.3 million.
However, dismal KFC, Pizza Hut and Habit Burger same-store sales are likely to negatively impact the company’s results. Our model predicts, KFC, Pizza Hut and Habit Burger sale-store sales to decrease 0.2%, 1.3% and 3% year over year, respectively.
Sales in several regions, including the Middle East, Indonesia and Malaysia, are likely to have been affected by the ongoing conflict. A competitive retail environment is likely to have put pressure on the restaurants’ costs. The company has been susceptible to profit margin pressure due to relentless expansion. Costs associated with brand positioning in all key markets and ongoing investment initiatives are likely to have hurt margins. Our model expects total costs and expenses to increase 10.8% from the year-earlier levels.
Price Performance & Valuation of YUM
In the past three months, the stock has decreased 3% against the industry’s 10.6% growth. In the same time frame, the stock has also underperformed other industry players like Darden Restaurants, Inc. DRI, up 11.1%, Starbucks Corporation SBUX, up 28.8% and Restaurant Brands International Inc. QSR, down 0.9%.
Price Performance
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Let us assess the value YUM offers to investors at its current levels.
From the valuation point of view, the stock is trading at a discount. YUM’s forward 12-month price-to-earnings ratio stands at 21.51, lower than the industry’s ratio of 25.06 and the S&P 500's ratio of 22.07.
P/E (F12M)
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Investment Thoughts for YUM
Investors might consider avoiding Yum! Brands ahead of its third-quarter 2024 earnings announcement due to several headwinds that could impact the company's profitability. Despite efforts to drive sales through value menus and global expansion, YUM is likely to have experienced cost pressures from increased competition and its aggressive expansion efforts, which are expected to have weighed on profit margins in third-quarter 2024. While the company has been leveraging AI-driven ordering and operational systems to improve efficiency, same-store sales for key brands like KFC, Pizza Hut and Habit Burger are projected to have declined year over year. Additionally, geopolitical instability in key international markets, such as the Middle East, Malaysia and Indonesia, poses risks to sales performance in those regions.
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Free: See Our Top Stock And 4 Runners UpStarbucks Corporation (SBUX) : Free Stock Analysis Report
Yum! Brands, Inc. (YUM) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
