Yum! Brands - $YUM - Earnings Analysis: Strong performance of Taco Bell U.S. and KFC International.
Business Model
Yum! Brands generates revenue primarily through franchise and property revenues, company restaurant sales, and franchise contributions for advertising and other services.
Revenue Sources
- Franchise and property revenues: Royalties from franchised restaurants.
- Company restaurant sales: Sales from company-owned restaurants.
- Franchise contributions for advertising and other services: Payments from franchisees for marketing and other support services.
Income Statement Analysis
- Total revenues increased by 16% due to an extra week of business.
- Operating profit increased by 8% due to revenue growth and expense management.
- Net income decreased by 9% due to an increase in income tax provision
Balance Sheet Analysis
- Total assets increased by 8.0% due to growth in current assets and property, plant, and equipment.
- Total liabilities increased by 2.0%.
- Total shareholders' deficit decreased by 2.7%.
Cash Flow Analysis
- Net cash provided by operating activities increased by 5.4% due to higher net income and adjustments for non-cash items.
- Net cash used in investing activities increased significantly due to the acquisition of KFC U.K. and Ireland restaurants.
- Net cash used in financing activities decreased due to lower share repurchases.
Capital Allocation
Yum! Brands is committed to delivering shareholder value through strategic investments in the business, maintaining a strong balance sheet, offering a competitive dividend, and returning excess cash to shareholders. The company increased its quarterly dividend by 6% to $0.71 per share and repurchased approximately 3.3 million shares for $440 million in 2024.
Management Commentary
2024 was marked with exceptional core operating profit growth given the complex consumer environment
Our twin growth engines remain strong with Taco Bell U.S. delivering same-store sales growth of 5% in the fourth quarter, meaningfully outpacing the industry, and KFC International delivering its second consecutive year with over 2,000 net new units.
Q1 unit growth will reflect the five thirty eight units exited in Turkey and Pizza Hut restaurants closures in a few markets resulting in an incremental 200 closures
Overall Sentiment: Positive, with a focus on growth and innovation. Management expresses confidence in their ability to navigate the complex consumer environment and deliver long-term value.
Recommendation
Rating: Hold
Reason for Rating: While Yum! Brands demonstrates strong financial performance and strategic initiatives, some uncertainty exists regarding the effect of terminations of KFC and Pizza Hut restaurants in Turkey. The long term algorithm of 5% Unit Growth, 7% System Sales Growth and 8% Core Operating Profit Growth is compelling for investors.
Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.
Generated on: 2/7/2025, 6:39:51 AM