Taco Bell and KFC parent Yum Brands takes sales hit from Middle East war

By James Rogers

Yum Brands' earnings were also affected by fluctuations in the company's quarterly tax rate

Yum Brands Inc.'s fourth-quarter results were impacted by war in the Middle East, which weighed on the company's revenue.

Revenue rose 1% to $2.04 billion from $2.02 billion in the same period last year, Yum said Wednesday. Analysts surveyed by FactSet were looking for sales of $2.11 billion. The company's same-store sales grew 1%, where analysts surveyed by FactSet were looking for 3.7%.

Speaking during a conference call to discuss the results, Yum (YUM) CEO David Gibbs said top-line sales were impacted by the conflict in the Middle East, with "varying degrees of impact" across markets in the Middle East, Malaysia and Indonesia. "This represented a low-single-digit headwind to Yum's overall fourth-quarter same-store sales growth," he added, noting that the trend continued into the first quarter.

Related: With restaurant prices likely to drop in 2024, here's why Yum's stock may be a better buy than McDonald's

Yum shares climbed Wednesday, shrugging off the company's weaker-than-expected fourth-quarter profit and revenue. After falling in premarket trading, Yum Brands' stock ended the session up 1.9%.

The parent of Taco Bell, Pizza Hut and KFC fast-food restaurants reported net income of $463 million, or $1.62 a share, compared with net income of $371 million, or $1.29 a share, in the prior year's quarter. On an adjusted basis, Yum reported earnings of $1.26 a share, compared with $1.32 a share in the same period last year and below the FactSet consensus of $1.40. Yum Brands said earnings were impacted by a 23-cent headwind from fluctuations in its quarterly tax rate.

Yum's KFC division had same-store sales growth of 2% during the fourth quarter, compared with 5% growth in the prior year's quarter, while the Taco Bell division had same-store sales growth of 3%, compared with 11% growth in the same period last year. The Pizza Hut division had a same-store sales decline of 2%, compared with growth of 1% in the year-ago quarter.

Related: Yum's KFC division agrees to acquire more than 200 KFC restaurants in the UK and Ireland from franchisee EG Group

During 2023, Yum said it opened a record 4,754 gross units. "We also made massive strides in scaling our proprietary digital and AI-driven ecosystem in partnership with our franchisees," Gibbs said in a statement. In 2024, the company expects to cross 30,000 restaurants at KFC and 20,000 at Pizza Hut, with over 60,000 globally for Yum, he added.

Yum rivals have cited the impact of geopolitical issues in their recent results. Earlier this week, fast-food giant McDonald's Corp. (MCD) cited the war in the Middle East when it reported its fourth-quarter results and said it expected "macro challenges" to continue in 2024. Last week, coffee chain Starbucks Corp. (SBUX) said that fighting in the Middle East hurt the company's business in that region and in the United States.

On Tuesday, Mexican fast-casual chain Chipotle Mexican Grill Inc. (CMG) topped Wall Street's estimates in its fourth-quarter results, with consumer demand and higher prices on the menu outweighing higher ingredient costs.

Related: McDonald's stock sees largest one-day loss in 18 months as it reveals impact from sales in the Middle East

During the conference call, Gibbs also said that Yum saw a slight outperformance from its Taco Bell restaurants in low -income areas versus the rest of the business. "So with the low-income consumer, I know there's been a lot of talk about, 'are they dropping out?'" he said. "It looks like we're doing a great job of holding on to them."

Shares of McDonald's ended Wednesday's session up 0.9%, while Starbucks was down 0.4% and Chipotle was up 7.2%. Yum's stock has fallen 1.4% in the past 52 weeks, compared with the S&P 500 index's SPX gain of 21.3%.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

02-07-24 1635ET

Copyright (c) 2024 Dow Jones & Company, Inc.