- Yum Brands Q4 2015 earnings are due for release on Feb 4 before markets open.
- The average analyst estimate comes in at earnings of $0.67 per share.
- Currency headwinds could prove to be an issue for the company.
Yum Brands Q4 2015 earnings are scheduled for release on Feb 4 before markets open. Analyst consensus is for the company to report EPS of $0.67 per share, implying a 10% year-over-year increase. However, Yum Brands could face difficulty in meeting analysts’ hopes due to a number of issues, including a strong dollar and macro-economic headwinds in China.
Pizza Hut struggles globally
Recently, Yum Brands’ Pizza Hut brand served as a huge weakness for the company. In the most recent quarter, Pizza Hut’s casual dining business saw same stores sales decline by 1% within its China Division. The management cited intense competition that used practices of heavy discounting as customers, wary of a softening economy, gravitate towards other businesses. Apparently, Pizza Hut’s products are proving too luxurious for the Chinese consumer.
Yum Brands issued a preliminary Q4 2015 press release that put Pizza Hut Casual Dining same stores sales at an 8% decline in its China Division. This serves as an indication that consumers in China remain under duress and are staying away from its locations. Yum Brands’ management insists that the company maintains a cost competitive advantage over smaller players and that eventually they will have to raise prices back to market levels. Also, the company is working on box meal plans that proved successful in other parts of the world.
Indications are that Pizza Hut serves as a weak link for Yum Brands as a whole. In Q3 2015, the Pizza Hut division, which includes all global Pizza Huts outside of China, only registered a 1% growth in same store sales. This could suggest a product quality/consumer experience issue with the Pizza Hut brand. By contrast, the KFC and Taco Bell divisions (all locations outside of China) saw same store increases of 3% and 4%, respectively, during Q3 2015. Consumers love the value oriented menu offerings available at KFC and Taco Bell.
Like a number of large global corporations Yum Brands faces headwinds in the form of the strong dollar. The Dollar Index, which measures the dollar against a “basket of global currencies”, increased 5% year-over-year. Adverse foreign currency translations sliced off $29 million from Yum Brands’ reported operating profit in Q3 2015. Investors should expect this to happen again in Q4 2015.
Discussions about Yum Brands China spin-off
Investors should anticipate a great deal of discussion about the spin off of Yum China from Yum Brands in Q4 2015. Yum China will act as Yum Brands’ largest franchisee. As such, Yum Brands will collect royalty fees, effectively shifting the overhead cost burden to Yum China. Moreover, Yum Brands will no longer need to navigate the increasingly volatile and opaque economic landscape in the country. Hopefully, management will discuss the strategic long term importance of this move in more detail.
Yum Brands’ portfolio of names should serve the long-term investor well. The value oriented menus provided at its restaurants serve as a draw. Moreover, the company will continue to benefit from any economic growth that Yum China provides through a 3% licensing fee, insulating Yum Brands’ shareholders from any potential volatility in the Chinese economy. Yum! Brands shareholders should continue to benefit from dividend increases. In the most recent quarter, the company boosted its dividend by 12%, providing a 3% dividend yield. Finally, Yum Brands stock still makes a decent long-term investment.