KFC owner beats on earnings, will partner with GrubHub on delivery

Key Points
  • Yum Brands posts fourth-quarter profit that beats analyst expectations but revenue falls short of forecasts.
  • Same-store sales at all of Yum Brands' restaurants rose 2 percent, just shy of analyst expectations of 2.4 percent.
  • Yum also says it will buy a 3 percent stake in online food-ordering company Grubhub.
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Yum Brands on Thursday posted fourth-quarter profit that beat analyst estimates, helped by higher demand for fried chicken at its KFC restaurants.

The company said net income rose to $436 million, or $1.26 per share, in the quarter ended Dec. 31, up from $303 million, or 83 cents per share, a year earlier.

Excluding items, the company earned 96 cents per share, topping analysts' average estimate of 80 cents.

Total revenue fell 16.4 percent to $1.58 billion, lower than the analysts' estimate of $1.59 billion.

Yum also said it will buy a 3 percent stake in online food-ordering company Grubhub. The $200 million investment in Grubhub is expected to bolster sales of pickup and delivery at KFCs and Taco Bells. As part of this partnership, a Yum executive will join GrubHub's board.

Grubhub's stock surged on the announcement. Yum's stock was down about 1 percent.

Here's what Yum reported compared with projections by a Thomson Reuters survey of analysts:

  • Adjusted EPS: 96 cents ex. items vs. 80 cents.
  • Revenue: $1.58 billion vs. $1.59 million.
  • Overall same-store sales: Up 2 percent vs. 2.4 percent growth.

Overall same-store sales at all of Yum Brands' restaurants, which include KFC, Taco Bell and Pizza Hut, rose 2 percent, just shy of analyst expectations of 2.4 percent, according to StreetAccount.

Same-store sales at KFC restaurants rose 3 percent in the quarter, higher than expectations of 2.9 percent.

At Pizza Hut, same-store sales rose 1 percent, just short of analysts' forecasts of 1.4 percent. At Taco Bell, same-store sales rose 2 percent, a smaller gain than the 2.8 percent analysts had expected. The company blamed weaker demand at the two chains in the fourth quarter.

The company forecast that same-store sales will grow 2 to 3 percent this year and that net new unit growth will be 3 to 4 percent.

Yum said that at the end of 2017 it was able to become 97 percent franchised. By the end of 2018, it expects to grow to 98 percent franchised.

"As Yum moves closer to a more asset like business model the level of stability of its revenues and earnings as compared to some other restaurant operators should increase while its overall capital requirements decline. However, as Yum moves closer to its goal of being 98% franchised by the end of 2018, the relationship with its franchisee and their financial health becomes a much greater focus," Moody's restaurant analyst Bill Fahy said in a note.

"So even though Yum, as franchisor is somewhat insulated from cost inflation related to commodities and labor, we also recognize that these items directly impact the franchisee and ultimately the entire company."