Yum Brands tops estimates, as Pizza Hut sales start to improve

Key Points
  • Yum Brands, which owns Pizza Hut, Taco Bell and KFC, posts earnings excluding items of 68 cents a share on revenue of $1.44 billion, beating Wall Street expectations.
  • The company says its global same-store sales grew 3 percent during the quarter, a stronger rise than the expected 1.9 percent.
  • Yum's three brands also beat expectations for same-store sales growth.
Ye Aung Thu | AFP | Getty Images

Yum Brands on Thursday reported third-quarter earnings and revenue that beat analysts' expectations, helped by improved performance at its Pizza Hut division.

The pizza chain has been a major drag on the company's earnings, prompting some to suggest that executives divest the brand. However, the company's strides in the third quarter to bolster Pizza Hut sales seem to be paying off.

Shares jumped more than 7 percent on the news.

Here's what Yum Brands reported compared with Wall Street's expectations:

  • EPS: 68 cents ex-items vs. 67 cents expected by analysts surveyed by Thomson Reuters.
  • Revenue: $1.44 billion vs. $1.39 billion expected in the Thomson Reuters survey.
  • Global same-store sales: 3 percent vs. 1.9 percent expected by StreetAccount.

"Don't expect any heroics, but we do believe we can, by getting the foundations in place and doing the right things, continue to progress our Pizza Hut U.S. performance," CEO Greg Creed said during an earnings conference call Thursday. "So I just feel good about the performance we are making, the steady progress we are making. We are making the brands more distinctive, more relevant and easier. And I think all of that is going to help us get to the long-term goal."

All three of Yum's brands, which also includes KFC and Taco Bell, beat expectations for same-store sales growth during the quarter, according to StreetAccount.

Taco Bell reported same-store sales growth of 3 percent, above Wall Street estimates of 2.5 percent; Pizza Hut saw growth of 1 percent, exceeding forecasts of a 0.7 percent decline; and KFC posted a 4 percent gain, beating a projected 2.7 percent.

This marks Pizza Hut's fifth consecutive quarter of positive same-store sales growth.

"YUM has begun the turnaround of domestic Pizza Hut, attempting to stabilize results to reduce drag on earnings," Stifel analyst Chris O'Cull wrote in a research note Thursday.

In April, Creed said the company would invest $130 million toward upgrading equipment, improving restaurant technology and boosting advertising through 2018 at its Pizza Hut restaurants.

The company struck a deal with franchisees in May for the effort and, in the second quarter, it reported a $12 million charge related to investments in digital initiatives at its pizza division.

Pizza Hut has already launched a loyalty program and announced that it will hire 14,000 delivery drivers by the end of 2017. The company declined to say how much of the investment money has gone toward these two initiatives.

In the third quarter, the company said it spent about $10 million on incremental advertising at the pizza chain. This was included Yum's operating profit, the company said.

This isn't the first time that Yum has had to revitalize one of its brands. In 2015, the company announced that it would invest $180 million into KFC to help boost deflated sales. The chicken chain has seen 13 quarters of same-store sales growth since the third quarter of 2014.

The company said third-quarter net income from continuing operations rose to $418 million, or $1.18 per share, from $218 million, or 55 cents per share, a year earlier.

Excluding items, Yum earned 68 cents a share, a penny ahead of what Wall Street was expecting, according to Thomson Reuters.

Revenue fell to $1.44 billion from $3.31 billion a year ago, reflecting the spinoff of its China business last November. Analysts predicted the latest quarter's revenue would be $1.39 billion.

"I think we're making progress," Creed said. "I think we're doing all the right things."