Yum! Brands Beats Estimates, and the $1.7 Billion Pizza Hut Check Finally Clears

Yum! Brands reported third-quarter revenue of $2.054 billion, up 4% from a year ago, with GAAP diluted earnings per share jumping to $5.92 from $1.41 thanks to a roughly $1.7 billion pre-tax gain tied to selling off Pizza Hut. Strip out that one-time windfall and the picture is flatter: adjusted EPS of $1.56 was actually down 1% from the prior year's $1.58, and worldwide same-store sales came in flat.

The brand-level split tells the real story. KFC added units at a 7% clip to reach 35,421 restaurants, with system sales up 6% excluding currency and same-store sales up 1%, though US system sales fell 6% even as China and other international markets picked up the slack; operating profit rose 9% to $425 million. Taco Bell grew more slowly, adding units at 3% to reach 9,102 restaurants, but same-store sales fell 4% in the US even as international system sales climbed 14% excluding currency; operating profit dropped 5% to $255 million. Pizza Hut, meanwhile, was sold off in two separate deals this year, mainland China to Yum China in August and the rest of the world to LongRange Capital in September, and its Pizza Hut-branded operating profit fell 41% in the quarter to $50 million on its way out the door. CEO Chris Turner said the company remains "confident in our ability to deliver consistent earnings growth and create long-term shareholder value."

What that all adds up to is a company that just got a lot smaller and, on the numbers that matter once the accounting gain washes out, not obviously better. KFC is doing the heavy lifting internationally while the US business cools off, Taco Bell is losing ground at home even as it expands abroad, and Pizza Hut, the brand that used to anchor the whole portfolio, is now somebody else's problem. Yum got paid well to make that last part true; whether KFC and Taco Bell alone can carry the growth story Yum is still selling investors is the thing to watch next quarter.

Source: Yum! Brands

Kyle Duford, Founder & Editor, BRNDWIRE. More from Kyle →