What happened
Shares of fast-food purveyor Yum! Brands (YUM 1.22%) were giving investors indigestion today as its third-quarter earnings report missed the mark. Results on the bottom line were below expectations, and the company was forced to write down the value of its recent investment in Grubhub, whose stock has plummeted.
As of 11:28 a.m. EDT, the stock was down 9.2%.
Image source: Getty Images.
So what
The parent of KFC, Taco Bell, and Pizza Hut said overall comparable sales rose 3% in the period, though total revenue decreased 4% to $1.34 billion, matching estimates. Comps were flat at Pizza Hut and rose 3% and 4% at KFC and Taco Bell, respectively.
Core operating profit increased 6.4% to $482 million, but adjusted earnings per share fell sharply from $1.04 to $0.80 as the company saw a negative $154 million swing in the value of its Grubhub investment from a year ago. That result missed estimates at $0.94. Backing out the loss from Grubhub, earnings per share rose $0.13.
CEO Greg Creed summed up the quarter, saying: "Following a very strong first half of 2019 and in line with our expectations, third-quarter results were consistent with our long-term growth model. We delivered system sales growth of 8%, with same-store sales of 3% and net-new unit growth of 7%, led by continued strong performances at KFC International and Taco Bell."
Though the company is executing at KFC and Taco Bell, Pizza Hut continues to be a challenge, which might be one reason for today's sell-off.
Now what
Looking ahead, the company continues to forecast earnings per share of at least $3.75 for the year, which does not include any loss from the Grubhub investment and compares to the analyst consensus at $3.86.
Coming into the report, Yum! stock was up nearly 30% this year, as the company is executing on its international expansion and posting solid comparable sales gains, so today's sell-off should be viewed in that context. With the stock trading at a P/E around 26 based on this year's earnings, Yum! looks expensive for a restaurant stock, so investor expectations are therefore going to be high.
