Taco Bell parent Yum Brands' stock slides on first-quarter earnings and revenue miss

By James Rogers

Yum Brands' CEO David Gibbs described 'a difficult operating environment' during the first quarter

Yum Brands Inc. shares (YUM) fell 2.7% Wednesday after the company reported first-quarter earnings and revenue below analysts' expectations amid what it described as "a difficult operating environment."

The parent of Taco Bell, Pizza Hut and KFC fast-food restaurants had net income of $314 million, or $1.10 a share, up from $300 million, or $1.05 a share, in the year-earlier period. Adjusted per-share earnings were $1.15, below the $1.20 FactSet consensus.

Yum Brands' revenue fell to $1.598 billion from $1.645 billion in the prior year's quarter. Analysts surveyed by FactSet were looking for revenue of $1.71 billion. Same-store sales declined 3%, below the analysts' estimate of 0.2% growth. "Despite a difficult operating environment, we delivered 6% Core Operating Profit growth demonstrating the resilience of our business model," Yum Brands CEO David Gibbs said in a statement. "As expected, same-store sales were pressured this quarter, but we are encouraged by strong 2-year same-store sales growth and positive momentum exiting the quarter."

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

The CEO described Yum Brands' first-quarter unit growth as "robust," with over 800 unit openings, which led to 6% unit growth. The company is positioned to surpass 60,000 restaurants this year, he added.

Yum Brands' digital-sales mix also reached a new record during the quarter, exceeding 50% for the first time in the company's history, according to Gibbs.

Speaking during a conference call to discuss the results, Gibbs explained that the company "navigated discrete consumer demand pressures," during the quarter and highlighted the impact on KFC and Pizza Hut customers. "As far as the international consumer goes, it's probably more of an emphasis on value than there has been in past quarters," he said. "We're seeing the same thing in the U.S. That's one that we know with KFC, we're well equipped to navigate."

Related: Coca-Cola beats first-quarter earnings estimates, raises annual revenue outlook

Excluding foreign-currency translation, KFC system sales grew 4% year over year, while Pizza Hut sales declined 4%.

The CEO also pointed to Taco Bell's performance with low-income consumers. "Customers care more about value in the U.S. Taco Bell, we know from the industry data that value is more important and that others are struggling with value and that Taco Bell is a value leader," he said. "You're seeing some low-income consumers fall off in the industry. We're not seeing that at Taco Bell."

Excluding foreign-currency translation, Taco Bell system sales grew 4% year over year.

Related: How's Microsoft's AI push going? Look at Coke.

Coca-Cola Co. (KO), which reported better-than-expected first-quarter results Tuesday, also highlighted a degree of consumer spending pressure this week. "The U.S. consumer remains in good shape," Coca-Cola CEO James Quincey said during a conference call to discuss the results. "There is some purchasing-power compression in the lower-income echelons."

Similar to the U.S., Coca-Cola is seeing an improved macro environment in Europe, while lower-income consumers are "under pressure," according to Quincey. "It's not too dissimilar a story compared to the U.S.," he said.

Yum Brands shares have risen 5.2% in 2024, outpacing the S&P 500 index's gain of 5.4%. Coca-Cola shares have risen 4.6%

-James Rogers

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05-01-24 1125ET

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