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Why Yum! Brands, Inc. Stock Jumped 10.5% in May

By Steve Symington - Jun 14, 2017 at 9:09PM

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The fast-food juggernaut started 2017 on a high note. Here's what investors need to know.

What happened

Shares of Yum! Brands Inc. (YUM 1.86%) climbed 10.5% in May, according to data from S&P Global Market Intelligence, after the parent company of Taco Bell, KFC, and Pizza Hut announced solid first-quarter 2017 results.

So what

Worldwide systems sales climbed 5% year over year, including 2% same-store sales growth -- an impressive feat given headwinds in today's broader dining market -- and a 3% increase in net units over the past year. Meanwhile, Yum! Brands continued its restructuring efforts, refranchising a total of 121 restaurants, including 31 KFC locations, 36 Pizza Huts, and 54 Taco Bell restaurants for proceeds of $185 million. As of the end of the quarter, Yum! Brands' global franchise mix had increased to 94%, up from 77% this past October and nearing its goal of being 98% franchised by the end of fiscal 2018. 

On the bottom line, Yum! Brands' adjusted earnings per share climbed 17% year over year to $0.65 -- well above the $0.60 per share investors were expecting.

The exterior of a KFC restaurant.


Now what

Yum Brands CEO Greg Creed noted that the company's "strategic transformation is well under way," with 8% same-store-sales growth at Taco Bell and double-digit-percentage operating profit growth at KFC driving a 9% increase in core operating profit for the quarter.

"We remain confident that our multi-year strategy to be more focused, more franchised, and more efficient will further strengthen our brands, accelerate growth, increase consistency in our results, and increase capital returns," Creed elaborated.

In the end, with the exception of continued weakness at Pizza Hut, where same-store sales declined 3%, there was little not to like about Yum! Brands' latest quarter. With shares currently trading at a reasonable 18.4 times trailing 12-month earnings, Yum! Brands has a good chance of extending last month's gains.

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