Yum China Holdings (NYSE:YUMC), Inc. YUMC reported second-quarter 2021 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. However, both the metrics improved year over year. The top and bottom lines missed the respective consensus mark after beating the same in the trailing six quarters.
Earnings & Revenue Discussion
During the second quarter, the company reported adjusted diluted earnings of 42 cents that missed the Zacks Consensus Estimate of 43 cents by 2.3%. The reported figure increased 20% from the year-ago quarter.
Revenues of $2,451 million lagged the consensus mark of $2,490 million but improved 29% on a year-over-year basis. Excluding foreign currency translation, the top line increased 17% year over year.
Total system sales in the reported quarter rose 14% year over year. System sales at KFC moved up 14%, while the same at Pizza Hut increased 16%.
Meanwhile, same-store sales climbed 5% year over year, primarily owing to an increase of 4% at KFC and 11% at Pizza Hut.
Operating Highlights
In the second quarter, total costs and expenses expanded 25% year over year to $2,218 million compared with $1,774 million in the year-ago quarter. The upsurge can primarily be attributed to a 23% rise in food and paper costs, a 41% increase in payroll and employee benefits and a 25% surge in occupancy and other operating expenses.
Restaurant margin in the quarter under review was 15.8%, up 210 basis points from the year-ago quarter’s levels.
During the quarter, adjusted operating profit totaled $237 million, up 79.5% from the year-ago quarter. Adjusted net income amounted to $185 million compared with $136 million in the prior-year quarter.
Balance Sheet
Cash and cash equivalents as of Jun 30, 2021, totaled $1,209 million compared with $1,158 million as on Dec 31, 2020. Inventories in the second quarter were $380 million compared with $398 million at 2020-end.
The company’s board of directors announced a dividend of 12 cents per common share. The dividend is payable on Sep 16, 2021, to shareholders of record at the close of business as of Aug 25.
Unit Development and Other Updates
In the second quarter, Yum China opened 404 new restaurants. In the first-half of 2021, the company had opened 719 gross new stores. During the quarter under review, the company’s delivery contributed nearly 30% of KFC and Pizza Hut's company sales, up nearly one percentage point from the prior-year quarter.
Digital orders during the second quarter accounted for 85% of KFC and Pizza Hut's company sales compared with 80% in the previous-year quarter. Loyalty programs and member sales of KFC and Pizza Hut led to year-over-year growth. The KFC and Pizza Hut loyalty programs increased to more than 330 million members.
2021 Outlook
Yum China expects to open approximately 1,300 (gross) new stores in 2021, suggesting an increase from the prior estimate of 1,000 stores. Meanwhile, capital expenditures in 2021 are anticipated at $700-800 million compared with the prior estimate of $600 million.
Zacks Rank & Key Picks
Yum China currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks the same space include Restaurant Brands International (NYSE:QSR) Inc. QSR, Yum! Brands (NYSE:YUM), Inc. YUM and The Wendy's (NASDAQ:WEN) Company WEN. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Restaurant Brands’ earnings in 2021 are anticipated to witness growth of 32%.
Yum! Brands reported better-than-expected earnings in the trailing four quarters, with the average surprise being 23%.
Wendy's beat earnings estimates in three of the trailing four quarters and missed once, leading to an average surprise of 17.3%.
(We are reissuing this article to correct a mistake. The original article, issued on July 29, 2021, should no longer be relied upon.)
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