Stock Wars: Yum! Brands Vs. Restaurant Brands International

Benzinga’s latest Stock Wars matches up two leaders in a major industry sector, with the goal of letting readers decide which company is the better investment.

In this article, we present a duel between two North American leaders in the quick-service restaurant business: Yum! Brands Inc. YUM and Toronto-headquartered Restaurant Brands International Inc QSR.

Beating the Yum! Drum: In 1997, Yum! was founded in Louisville, Kentucky, as Tricon Global Restaurants Inc. and changed its name in 2002.

The company operates through four divisions, each devoted to high-profile quick-service dining brands: KFC, Pizza Hut, Taco Bell and The Habit Burger Grill.

As of the end of 2020, Yum! was operating in approximately 150 countries, and its portfolio included 25,000 KFC units, 17,639 Pizza Hut units, 7,427 Taco Bell units and 287 The Habit Burger Grill units.

The COVID-19 pandemic had a deleterious impact on the restaurant industry, and Yum! saw its sales tumble as indoor dining was initially forbidden by state government edicts before being reopened at limited capacity levels.

But the company pivoted quickly in shifting to takeout and delivery options, ultimately closing 2020 with an uptick in revenue: $5.65 billion, up from $5.59 billion in 2019. Yum! also announced a dividend of 47 cents per common share at the end of the fourth quarter.

“In 2020, digital sales hit a record of $17 billion, about a 45% increase over the prior year and a testament to our brands’ ability to quickly meet new consumer needs,” said CEO David Gibbs. “I am more confident than ever in the ability of our teams and franchisees to compete and win in a rapidly changing world.”

Yum! is entering the dawn of the post-pandemic era with approximately 98% of its system open in either a full or limited capacity. The company’s brands have spent the past several months going out of their way with eye-catching publicity efforts designed to keep them relevant, including Pizza Hut’s world’s first non-fungible token (NFT) pizza and Taco Bell’s NFT taco.

The company is also working to expand its digital and grab-and-go endeavors, which include its acquisitions last month of the Israeli company Ticktuk Technologies to expand its text ordering options and Kvantum Inc., the artificial intelligence-based consumer insights and marketing performance analytics business, so it can keep track of consumer trends.

After market close Tuesday, Yum! shares are at $114.08, close to its 52-week high of $114.70 and far removed from its 52-week low of $66.47

A Canadian Approach: Founded in 1954 and headquartered in Toronto, Restaurant Brands International owns, operates and franchises the Tim Hortons, Burger King and Popeyes Louisiana Kitchen brands.

As of the end of 2020, the company was operating in roughly 100 countries and either owned or franchised 4,949 Tim Horton restaurants, 18,625 Burger King eateries and 3,451 Popeyes locations.

Unlike Yum!, RBI came out of 2020 with a year-over-year revenue decline: Total revenues for 2020 were $1.35 billion, down from $1.45 billion one year earlier. RBI also announced a dividend of 53 cents per common share for Q1 2021.

In announcing the year-end earnings, CEO Jose Cil was more focused on looking ahead for opportunity than looking back on tumult.

“We are confident that our efforts in food and beverage quality, restaurant experience, digital leadership and brand building will be beneficial to returning our business to the growth we know we are capable of in all three brands,” he said.

“While we ended 2020 with about the same restaurant count as 2019, we have been working closely with our network of franchisees on restarting the development engine and expect to deliver net restaurant growth roughly in line with what we delivered in 2018 and 2019.

“Strong results in 2021 will help pave the way toward our aspiration of achieving 40,000 restaurants in the coming years,” Cil added. “Driving rapid digital innovation has been essential to the recovery of our business. We increased support for and continued to build on our e-commerce platforms, reimagined service opportunities like curbside pickup and expanded delivery services into thousands of new restaurants. The outcome has been the more than doubling of digital sales in North America.”

RBI has not wasted any time during the first quarter of 2021 in redirecting its focus. Expansions of the Popeyes brand into the U.K., Mexico, India, Bhutan, Bangladesh and Nepal have been announced, and a $63.7 million investment into supercharging advertising expenses, highlighting menu improvements and enhancing the digital guest experience was announced for the Tim Hortons operations in Canada.

And RBI is encouraging internecine dueling between its Burger King and Popeyes brands with a revival of the zany chicken sandwich wars that took up much of the media's attention in 2019; Yum! is hardly a bystander, with its Taco Bell branded hybrid taco/chicken sandwich combination trying to secure a place on the fast-food battlefield.

After market close Tuesday, RBI shares are at $65.86, slightly lower than its 52-week high of $68.48 and comfortable removed from its 52-week low of $35.15.

The Verdict: Both companies came into a more optimistic environment with the dawning of 2021.

As coronavirus vaccines are rolled out with greater speed and more states lift their restrictions on indoor restaurants, Yum! and RBI will certainly end this year in a better position than they did last year.

Still, Yum! is in a better financial position as of today, and its recent acquisitions point to a determination to build on its 2020 digital strengths. Furthermore, its announcement from earlier this morning of Taco Bell "hiring parties" on April 21 to fill 5,000 job openings is among the most impressive examples of the can-do spirit in this sector.

Investors looking for long-term growth in fast food should take a second look at what Yum! has to offer. While RBI also deserves attention, it's a runner-up in this match to its versatile rival.

(KFC and Popeyes photos by Mike Mozart, Tim Hortons photo by Ian Rutherford. All photos are reprinted courtesy of Flickr Creative Commons.)