Yum! satisfied investors, for the most part.
Yum! Brands Inc. (YUM) shares slipped Thursday, Feb. 8, after reporting a sizable earnings beat. The parent company of Taco Bell, KFC and Pizza Hut reported earnings of 96 cents per share and a total revenue of $1.58 billion in the fourth quarter of 2017, which ended Dec. 31, 2017, compared with analyst forecasts of 80 cents in earnings per share and sales of $1.59 billion.
Every banner under Yum reported global same-store sales growth in 2017, with 3% for KFC, 1% for Pizza Hut and 2% for Taco Bell. Overall, same-store sales rose 2%. In the fourth quarter in the U.S., however, KFC posted negative 1% in same-store sales change, while Pizza Hut and Taco Bell both saw a 2% uptick.
Yet, the king of fast food, McDonald's Corporation (MCD) , showed the sector how it's done when it reported quarterly earnings last month. It bested Yum!, by 3.5%, up to 5.5%, in global comparable sales. And it's $1$2$3 Value Menu, introduced Jan. 4 has taken off.
The franchise profit margin for McDonald's is four times that of company operated restaurants, according to research firm Trevis, due to differences in employee and operational costs, which are absent for franchised locations. "This is the primary reason why McDonald's and other chains prefer the franchise model despite lower revenues," Trevis analysts wrote in a December note.
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For Yum, net income totaled $436 million for the latest quarter, up from $303 million from last year.
"Despite headwinds from refranchising dilution and lapping a 53rd week, we delivered full-year core operating profit growth of 7%," CFO David Gibbs said in a statement. "We are on track with our strategic transformation to accelerate growth and made significant progress towards achieving these objectives in 2017."
In 2017, Yum opened 1,407 net new stores and refranchised 1,470 restaurants, including 828 KFC, 389 Pizza Hut and 253 Taco Bell locations. The restaurant chain also bought back 26.6 million shares at an average price of $72 a share for a total of $1.9 billion.
Yum made investors happy Thursday morning by also announcing a partnership with the online food delivery service Grubhub Inc. (GRUB) to improve online sales and delivery from Yum's restaurants. In the deal, Yum will acquire $200 million of Grubhub stock, which Grub will use to expand its delivery capacity. In premarket trading Thursday, Grubhub's shares were up 22%, to $84.33.
Said Yum CEO Greg Creed in a statement: "We are committed to making our iconic brands easier to access through online ordering for pickup and delivery, and aggressively pursuing delivery as a strategic global growth opportunity, with nearly half of our 45,000 restaurants already offering it today."
Yum stock is down 4.73% at Thursday's close, trading at $76.30. Grubhub is up 27%, at $89.04.
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