Yum! Brands Didn't Excite Wall Street with Q2 Numbers


Poor Yum! Brands (YUM). The company has some high-profile trademarks in its portfolio, and it competes vigorously with Burger King (BKC), McDonald's (MCD), and Wendy's/Arby's Group (WEN). It's a competent player in its field. Sometimes, though, that just isn't enough. Tuesday, during the after-hours action, the stock was sold off, losing over 3% of its value.

And this was after the owner of KFC, Pizza Hut, and Taco Bell beat earnings expectations in the second quarter. It's a funny thing, though: You can top estimates all you want, but if your guidance isn't so hot, your stock isn't guaranteed to respond in the positive direction.

According to the earnings report, Yum delivered 58 cents per share on an adjusted basis. Projections called for 54 cents per share. Not bad. Plus, China continues to offer excellent growth opportunities for the company.

Unfortunately, here are two bad points to the story. Firstly, we have the lousy guidance I just alluded to. According to Benzinga.com, analysts would like to read about full-year adjusted profits of $2.48 per share, but the company's outlook is for $2.43 per share. Secondly, same-store sales in the United States just aren't cutting it. They were flat in Q2, and flat is most definitely not what investors want to see. I mentioned back in April that Yum! Brands has to get serious about comps in the domestic market. I guess I'll just have to reiterate the sentiment. Comps really are key to a chain of stores or restaurants; new marketing campaigns are in order when they become stagnant and/or decline.

Nevertheless, long-term investors can continue holding the stock, in my opinion. I'm not sure if traders should step in at this juncture, but for those with patience, the equity may reward down the line. The press release shows that cash flow is doing fine, and when you consider the potential for the brands owned by this entity, you've got to have a fair amount of optimism for the future.

Disclosure: I don't own any company mentioned; positions can change without notice.

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