Yum Brands Q2 earnings beat profit views as Taco Bell questions linger
Yum Brands topped adjusted profit estimates but missed revenue views, with no update yet on the Taco Bell-linked cyclospora outbreak.
By Maya Okafor · Markets Writer
· 3 min read
Yum Brands Q2 earnings gave investors a split picture Wednesday: profit came in ahead of Wall Street’s forecast, while revenue fell short. The bigger overhang is Taco Bell, Yum’s strongest chain, after a cyclospora outbreak tied to some of its restaurants began pressuring customer traffic in July.
The company did not provide details in its earnings release on how the outbreak is affecting the business. The quarterly results covered the period ended June 30, before federal officials connected the illness outbreak to Taco Bell restaurants in mid-July.
The Food and Drug Administration first linked the parasitic outbreak to iceberg lettuce served by Taco Bell in mid-July, according to CNBC. Since then, daily visits to Taco Bell locations have dropped by double-digit percentages, CNBC reported, citing Placer.ai data.
How did Yum Brands perform in Q2?
Yum reported adjusted earnings of $1.62 per share, above the $1.58 per share analysts expected, according to LSEG estimates cited by CNBC. Revenue was $2.17 billion, below Wall Street’s $2.2 billion forecast.
Net income rose to $853 million, or $3.08 per share, from $374 million, or $1.33 per share, a year earlier. Excluding costs tied to Yum’s strategic review of Pizza Hut and other items, earnings were $1.62 per share.
Revenue increased 12% from a year earlier, helped by new restaurant openings. Global same-store sales rose 3%, close to the 2.9% growth analysts expected, according to StreetAccount estimates cited by CNBC. Same-store sales measure sales at locations open long enough to compare with the prior year, giving investors a cleaner read on demand than total revenue alone.
Taco Bell remained the standout in the quarter, with same-store sales up 7%. That strength came before the outbreak-related traffic decline appeared in third-quarter data, making the next update especially important for investors tracking Yum’s growth.
What is happening with the Taco Bell outbreak?
Cyclospora is a parasite that can cause gastrointestinal illness. CNBC reported that federal and state health officials have investigated whether lettuce served at some Taco Bell restaurants was connected to a widespread cyclosporiasis outbreak.
Yum relies heavily on Taco Bell as a key growth driver, according to CNBC. That makes any sustained traffic decline more meaningful than a short-lived headline risk, because fewer visits can translate into weaker same-store sales if customers stay away.
CNBC reported that Yum executives were likely to face questions about the outbreak and the related sales downturn during the company’s earnings call. The company generally does not give full-year or next-quarter guidance for same-store sales or earnings per share.
The impact has not been limited to Taco Bell. Chipotle Mexican Grill executives said consumer distrust toward chains serving fresh lettuce weighed on its sales in the second half of July, even though Chipotle was not implicated in the outbreak, CNBC reported.
Across Yum’s other brands, KFC posted 2% same-store sales growth. In China, KFC’s largest market, system sales rose 6%, according to Yum. Pizza Hut was the weak spot, with same-store sales down 1%.
Yum said last month it agreed to sell Pizza Hut to private equity firm LongRange Capital and Yum China for $2.7 billion. The sale follows a long period of weaker performance at the pizza chain compared with the rest of Yum’s portfolio.
This story draws on original reporting from CNBC.
