Bleak comp sales adulterate Yum! Brands’ Q2 earnings beat as stock drops

Multi-brand fast-food chain Yum! Brands (YUM) reported better-than-expected earnings for the second quarter as the continuing global expansion boosted sales. The company’s stock dropped following the announcement as its unimpressive comparable store performance triggered a selloff.

Second-quarter earnings, excluding special items, increased 20% annually to $0.82 per share, exceeding Wall Street estimates. Reported net income was $321 million or $0.97 per share, compared to $206 million or $0.58 per share last year.

The bottom line benefitted from a marked decline in operating expenses and tax benefits. At $412 million, core operating profit was slightly below the last year’s figure.

Meanwhile, revenues dropped about 6% year-on-year to $1.37 billion and matched analysts’ forecast. Worldwide comparable store sales were up 1% during the three-month period but came in below expectations. KFC and Taco Bell registered 2% growth each, while same-store sales at Pizza Hut dropped 1%. Pizza Hut and KFC generated the lion’s share of their sales in the US and China.

“We continue to execute against our multi-year transformation strategy and remain on track with our full-year 2018 guidance. Second quarter core operating profit was consistent with our expectations and we are seeing good progress against our plans as we start the second half of the year,” Said CEO Greg Creed.

The bottom line benefitted from a tax benefit and a marked decline in operating expenses

The company re-franchised 28 KFC restaurants and 23 Pizza Hut units during the second quarter when it repurchased 7.6 million shares for $643 million. Continuing the geographical expansion, KFC opened 301 new restaurants in 52 countries and Pizza Hut launched 176 new units in 47 countries. The Bell division opened 43 new restaurants.

RELATED: Yum! Brands Q2 2018 earnings call transcript

Restaurant chain McDonald’s, which competes with Yum! Brands, last week reported above-consensus earnings for the second quarter, despite a marked decrease in revenues.

Yum! Brands shares, which traded broadly flat over the past twelve months, hit a record high in April. The stock lost about 2% in early trading Thursday after the earnings announcement.

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