Yum Brand’s earnings rose 8.5% on lower costs, defying a sales slowdown

This firm continues to grow its global footprint, with 808 new outlets opened in the first quarter of 2024 alone.

The expansion demonstrates the company’s robust growth strategy and potential for increased market share as it continues to make significant strides in digital innovation, including the use of AI to analyze customer ordering habits.

Meanwhile, the stock trades at 21.8 times the company’s 2024 earnings forecast, a reasonable price when you consider its ongoing growth prospects.

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YUM! BRANDS INC. (New York symbol YUM) operates 58,708 restaurants in more than 155 countries. Its main banners are KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). Franchisees now operate 98% of outlets.

Yum continues to upgrade its online ordering systems as part of its plan to get 100% of its sales through digital channels. That includes installing more self-serve ordering kiosks at its restaurants.

The company is also using artificial intelligence (AI) software to drive its sales and earnings growth.

For example, Yum paid an undisclosed sum in 2021 for Kvantum, which makes AI software to analyze customers’ ordering habits. The company then uses that data to create marketing promotions that encourage repeat visits and more spending per visit.

Yum opened 808 gross new outlets (it did not report store closures) in the first quarter of 2024. However, its revenue fell 2.9%, to $1.60 billion from $1.65 billion a year earlier. That missed the consensus forecast of $1.71 billion.

Growth Stocks: Sales dip should be temporary, earnings should jump 11% this year

The lower sales are largely because bad weather hurt traffic at its U.S. locations. As well, KFC is facing strong competition from other fast-food chicken sellers, while the conflict in the Middle East hurt sales at its international division.

On a same-store basis, overall sales declined 3% (excluding currency rates). Same-store sales rose 1% at Taco Bell, but they fell 2% at KFC and 7% at Pizza Hut.

However, thanks to lower interest costs and taxes, earnings before unusual items rose 8.5%, to $1.15 a share from $1.06. That also missed the consensus estimate of $1.20.

The company’s new stores and menu items will lift its earnings in 2024 by about 11% to $5.73 a share. The stock trades at 21.8 times that forecast, which is a reasonable p/e in light of Yum’s popular brands. The $2.68 dividend yields 1.9%.

Recommendation in Wall Street Stock Forecaster: Yum Brands Inc. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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