Yum Brands Earnings Miss Estimates as China Weighs on KFC, Pizza Hut Sales

Daniel Acker | Bloomberg | Getty Images
  • Yum Brands on Wednesday reported quarterly earnings and revenue that missed analysts' expectations.
  • Lockdowns in China weighed on sales.
  • The KFC and Pizza Hut owner said it would fall short of its long-term forecast for core operating profit growth as it excludes the Russian business.

Yum Brands on Wednesday reported quarterly earnings and revenue that missed analysts' expectations as lockdowns in China weighed on sales.

The company also said it would miss its long-term target for operating profits this year as a result of suspending its Russian business.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.05 adjusted vs. $1.07 expected
  • Revenue: $1.55 billion vs. $1.59 billion expected

Global same-store sales rose 3% in the quarter.

Yum's KFC chain reported same-store sales growth of 3% during the period, but the company said, excluding China, same-store sales actually climbed 10%. China is KFC's largest market by system-wide sales. Wall Street was anticipating same-store sales growth of 4.4%, according to StreetAccount estimates.

Likewise, China also weighed on Pizza Hut's results. The market is the pizza chain's second largest. It reported flat same-store sales growth in global markets, including the United States. Meanwhile, international markets saw same-store sales rise 5%, but excluding China the metric climbed 10%.

CFO Chris Turner said it's unclear when demand in China will bounce back.

Pizza Hut's U.S. sales were also under pressure. The chain said same-store sales declined 6% in its home market.

"We still see strong demand in the Pizza Hut U.S. business, but it's primarily a challenge of being able to fill it with the labor challenges around drivers," Turner said on the company's conference call with analysts.

Taco Bell was the only chain in Yum's portfolio to report better-than-expected same-store sales growth, at 5% versus an expected 2.7%.

Yum opened 628 net new locations during the quarter, most of which were KFC restaurants, while digital orders accounted for more than 40% of transactions and $6 billion in system-wide sales.

Net sales rose 4% to $1.55 billion, falling short of expectations of $1.59 billion.

The company reported first-quarter net income of $399 million, or $1.36 per share, up from $326 million, or $1.07 per share, a year earlier.

Excluding refranchising gains, profits from Russian operations and other items, the company earned $1.05 cents per share, missing the $1.07 per share expected by analysts surveyed by Refinitiv.

Yum pledged to donate net profits from its Russian business to humanitarian efforts after the Kremlin invaded Ukraine. It also temporarily closed company-owned KFC locations in Russia and is finalizing an agreement with its Russian franchisee to suspend Pizza Hut operations there. Russia accounted for about 2% of Yum's system-wide sales in 2021, and it was a key market for new restaurant development.

Due to its exclusion of Russian profits, Yum said it would fall short of its long-term target to generate high single-digit growth for its core operating profits. Instead, for 2022, it's now anticipating growth in the mid-single digits.

Read the full earnings report here.

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