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Category: Stock Market and Yum Brands
Date: 3 September 2019 Stock Price: $116.78 We take a look at the 2nd quarter earnings report of their 2019 fiscal year of Yum! Brands, the owner of KFC, Pizza Hut and Taco Bell
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About Yum Brands
Yum! Brands, Inc., based in Louisville, Kentucky, has over 48,000 restaurants in more than 145 countries and territories primarily operating the company’s brands -- KFC, Pizza Hut and Taco Bell -- global leaders of the chicken, pizza and Mexican-style food categories. Worldwide, the Yum! Brands system opens over eight new restaurants per day on average, making it a leader in global retail development. In 2018, Yum! Brands was named to the Dow Jones Sustainability North America Index and ranked among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. In 2019, Yum! Brands was named to the Bloomberg Gender-Equality Index for the second consecutive year.
Financial overview of YUM's latest earnings report
The numbers we are interested in (for the quarter):
Contribution of Yum! Brands different brands to total revenue for this quarter:
- Total revenues: $1.310 billion (down 4% from $1.368 billion for the same quarter of the previous year)
- Total costs and expenses, net: $839 million (down from 9% from $919 million for the same quarter of the previous year)
- Net Income: $289 million (down 10% from $321 million for the same quarter of the previous year)
- Diluted earnings per share (EPS): $ 0.92 (down 5% from $0.97 for the same quarter of the previous year)
- PE ratio: 32
- Average number of shares outstanding: 314 million (down 5% from 331 million for the same quarter of the previous year)
- Dividends declared per common share: $ 0.42 (up from 16.67% from $0.36 for the same quarter of the previous year)
- Dividend yield: 1.45% (assuming the same dividend that was declared this quarter is paid each quarter of the fiscal year)
- Cash and cash equivalents: $252 million
- Cash and cash equivalents per share: $0.8 per share
- Cash and cash equivalents makes up 0.68% of the group's total market capital
- Accounts and notes receivable: $535 million
- Accounts and notes receivable makes up 11.4% of the group's total assets
- Cash generated from operations: $551 million
- Cash generated from operations per share: $1.75
Contribution of Yum! Brands different brands to total revenue for this quarter:
- KFC: $584 million (44.5% of Yum! brands total revenue)
- Pizza Hut: $246 million (18.8% of Yum! brands total revenue)
- Taco Bell: $480 million (36.7% of Yum! brands total revenue)
YUM's management commentary on the results and earnings guidance
Louisville, KY (August 1, 2019) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second-quarter ended June 30, 2019. Worldwide system sales excluding foreign currency translation grew 10%, with 7% net-new units and 5% same-store sales growth. Second-quarter GAAP EPS was $0.92, a decrease of (5)%. Second-quarter EPS excluding Special Items was $0.93, an increase of 15%. GREG CREED COMMENTS Greg Creed, CEO, said “Second-quarter results maintained early year momentum and helped us to exceed our already high expectations for a strong first half of 2019. I’m especially pleased to report that we delivered 10% system sales growth in the quarter, supported by broad based strength at KFC International and Taco Bell. Our commitment to being a more focused, more franchised, and more efficient growth company positions us well for long-term success. Through the lens of our four growth drivers, we continue to leverage our unprecedented scale and expand our capabilities with the goal of enhancing franchise economics, accelerating growth and maximizing shareholder value.”
Second-quarter highlights
Worldwide system sales excluding foreign currency translation grew 10%, with KFC, Pizza Hut and Taco Bell each at 10%. Adjusting the prior year base to include Telepizza, system sales growth excluding foreign currency translation would have been 9% worldwide and 4% for the Pizza Hut Division. We opened 312 net units in the quarter. On a year-over-year basis, which takes into account the strategic alliance with Telepizza in the fourth-quarter 2018, net new unit growth was 7%. We repurchased 1.9 million shares totaling $196 million at an average price per share of $104. We reflected the change in fair value of our investment in Grubhub by recording pre-tax investment income of $24 million in the second quarter of 2019 and $25 million in the second quarter of 2018, which resulted in $0.06 in EPS during each respective quarter. Foreign currency translation unfavorably impacted divisional operating profit by $17 million
2019 Earnings per share guidance
We have also provided certain forward-looking guidance using non-GAAP measurements. Specifically, in connection with the announcement of our strategic transformation initiatives in 2016, we announced a 2019 Diluted EPS target of at least $3.75 (“2019 Adjusted EPS Target”). This 2019 Adjusted EPS Target was intended to exclude:
• Any impact from changes in FX rates (i.e. FX rates were assumed not to change from those in place when we determined the 2019 Adjusted EPS Target in 2016)
• Any Special Items; and
• The impact of the 53rd week in 2019 for our U.S. businesses and certain international subsidiaries that report on a period calendar;
We acquired an interest in Grubhub common stock subsequent to our original determination of the 2019 Adjusted EPS Target and thus are excluding any resulting mark-to-market adjustment for that investment from the 2019 Adjusted EPS target.
Second-quarter highlights
Worldwide system sales excluding foreign currency translation grew 10%, with KFC, Pizza Hut and Taco Bell each at 10%. Adjusting the prior year base to include Telepizza, system sales growth excluding foreign currency translation would have been 9% worldwide and 4% for the Pizza Hut Division. We opened 312 net units in the quarter. On a year-over-year basis, which takes into account the strategic alliance with Telepizza in the fourth-quarter 2018, net new unit growth was 7%. We repurchased 1.9 million shares totaling $196 million at an average price per share of $104. We reflected the change in fair value of our investment in Grubhub by recording pre-tax investment income of $24 million in the second quarter of 2019 and $25 million in the second quarter of 2018, which resulted in $0.06 in EPS during each respective quarter. Foreign currency translation unfavorably impacted divisional operating profit by $17 million
2019 Earnings per share guidance
We have also provided certain forward-looking guidance using non-GAAP measurements. Specifically, in connection with the announcement of our strategic transformation initiatives in 2016, we announced a 2019 Diluted EPS target of at least $3.75 (“2019 Adjusted EPS Target”). This 2019 Adjusted EPS Target was intended to exclude:
• Any impact from changes in FX rates (i.e. FX rates were assumed not to change from those in place when we determined the 2019 Adjusted EPS Target in 2016)
• Any Special Items; and
• The impact of the 53rd week in 2019 for our U.S. businesses and certain international subsidiaries that report on a period calendar;
We acquired an interest in Grubhub common stock subsequent to our original determination of the 2019 Adjusted EPS Target and thus are excluding any resulting mark-to-market adjustment for that investment from the 2019 Adjusted EPS target.
YUM! Brands (NYSE: YUM) stock price history
The image below, obtained from Google shows the stock price history of Yum! brands over the last 5 years. There was a significant dip in the stock price of Yum! towards the end of 2016, but this was due to the group separating Yum! China. Since that event the stock price increased significantly from the $55 it was trading at after the Yum! China split to the current $116.78 a stock. That's a 110.9% increase for the stock since late 2016. The group's stock is also trading at close to it 52 week high and far away from its 52 week high which shows that recent momentum with the group's stock price has been positive.
Yum! Brands (NYSE: YUM) latest stock valuation
So what do we value Yum! Brands stock at after their latest earnings release. And is there value to be had in Yum! brands stock considering its strong run in recent years? Our stock valuation models provides a target price (full value price) from Yum! brands at $87.20 a share. Thus at its current price we don't feel that from a fundamental investing or value investing perspective that Yum! Brands stock offers value. We would therefore not advise investors to buy into it at its current price.