For Yum Brands, Pizza Hut Disappoints While KFC And Taco Bell Shine

Despite volatility in individual segments, Yum! Brands, Inc. YUM reported its Q3:16 results mostly in line with expectations, while modestly raising its full-year guidance.

Barclays’ Jeffrey A. Bernstein maintains an Equal-Weight rating on the company, with a price target of $88.

The New YUM

Bernstein believes the Q3:16 results would “lead to enhanced appreciation for New YUM, avoiding the volatility of YUM China.” The shares are expected to underperform, following the company’s call on October 6 regarding current China trends and the associated recovery.

The China separation in progressing on track for October 31, and the analyst mentioned that it would “offer the option to own either, but not necessarily both” stocks.

Q3 Results

For Q3:16, Yum reported China and Pizza Hut results below expectations, while KFC and Taco Bell beat expectations.

The company reported its adjusted EPS for the quarter at $1.09, representing 9 percent year-on-year growth but below the consensus and estimate.

China comp came in at -1 percent, with KFC and Pizza Hut comps below the estimates, driven by negative sentiment following the South China Sea ruling and tougher compares.

Restaurant margin, however, beat expectations, while KFC and Taco Bell beat the estimates outside China.

Guidance

Yum raised its 2016 operating profit growth guidance from “at least 14 percent” to “at least 15 percent”.

“KFC & TB momentum was the driver, albeit mitigated by PH weakness & China volatility,” the analyst explained.

Following the separation, the company expects 15 percent EPS growth in China and 15 percent total return on the remaining franchised company.

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