Yum China Holdings, Inc. (NYSE:YUMC) has reported mixed second-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings of 46 cents surpassed the Zacks Consensus Estimate of 37 cents. The reported figure also increased 28% from the year-ago quarter. If the impact of market gains on the company’s equity investment in Meituan Dianping is taken into account, earnings rose 14% year over year.
Yum China gained from accelerated store openings and robust performance at KFC. Also, its cost-saving initiatives have been encouraging. Notably, shares of Yum China have gained 31.2% over the past year, slightly outperforming the industry’s 30.2% rally.
Detailed Revenue Discussion
The company’s total revenues of $2.12 billion lagged the consensus mark of $2.17 billion but grew 3% year over year. Excluding foreign currency translation, the top line increased 10% on a year-over-year basis.
Total system sales in the reported quarter improved 10% from the year-ago quarter, owing to system sales growth of 12% at KFC and 4% at Pizza Hut. Also, total comps moved up 4%, primarily owing to 5% comps rise at KFC and 1% increase at Pizza Hut.
Operating Highlights
In the second quarter, total costs and expenses increased 2% year over year to $1,920 million. This upside was due to a 3% increase in restaurant expenses, 6% rise in Payroll and employee benefits expenses, and a 6% hike in food and paper expenses.
Restaurant margin in the quarter under review was 14.7%, reflecting a 40-basis point (bps) decline from the year-ago quarter. This fall in restaurant margin was due to wage and commodity inflation, investments in product upgrades, and promotions at both KFC and Pizza Hut, partially offset by sales leverage, productivity improvement and other cost-saving initiatives.
Adjusted operating profit totaled $204 million, up from $193 million in the year-ago quarter. Net income increased to $178 million from $143 million in the prior-year period.
Yum China Holdings Inc. Price, Consensus and EPS Surprise
Balance Sheet
Cash and cash equivalents as of Jun 30, 2019, summed $1,296 million compared with $1,266 million as of Dec 31, 2018. Inventories at the end of the second quarter were $309 million compared with $307 million at the end of 2018.
In the quarter under review, the company’s board of directors declared a cash dividend payout of 12 cents per share on common stock, payable on Sep 17, 2019, to stockholders of record at the close of business as of Aug 27, 2019. Additionally, Yum China repurchased 1.8 million shares for $74.9 million.
Unit Development and Other Details
In the second quarter, Yum China opened 178 restaurants and remodeled 238 restaurants. The company’s online delivery contributed 20% to sales, up by 4 percentage points registered in the prior-year quarter. Delivery services expanded to 1,190 cities, up from 1,010 in the prior-year period. Digital payments accounted for 90% of sales in the quarter under review, marking an increase of 5 percentage points year over year.
As of Jun 30, 2019, the KFC loyalty program constituted more than 185 million members and the Pizza Hut loyalty program had in excess of 60 million members.
2019 Outlook
Yum China expects to open 800-850 gross new units in 2019, up from 600-650 mentioned earlier. The company expects capital expenditure between $475 million and $525 million at an effective tax rate below 28%.
Zacks Rank & Peer Releases
Yum China currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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