Yum Brands reported weaker-than-expected third-quarter results on Tuesday as the Middle East conflict drove softness at its KFC and Pizza Hut divisions. Revenue rose to $1.83 billion for the three months ended Sept. 30 from $1.71 billion a year ago, missing the $1.89 billion average analyst estimate on Capital IQ.
Adjusted earnings per share dipped to $1.37 from $1.44, also missing the $1.41 Wall Street view. Worldwide same-store sales fell 2%, with declines of 4% at both KFC and Pizza Hut more than offsetting a 4% rise at Taco Bell. Shares of Yum Brands rose 2.6% in midday trade. "Closures have temporarily increased this year, primarily in markets dealing with impacts from the Middle East conflict and in China," Chief Executive David Gibbs told analysts on a conference call.
Closures tied to the Middle East situation could impact fourth-quarter net new unit growth and "put at risk our ability to deliver our 5% unit growth target," he noted. These closures are low-volume units and are not expected to result in a material financial impact, Gibbs stated on the call. At KFC, significant unit growth was offset by the Middle East situation, along with transaction softness in "several regions navigating constrained consumer spending," Gibbs added.
For Pizza Hut, product news and bounce-back offers were insufficient "to compete against deep value offers in the market," he explained. In the U.S., the overall quick-service restaurant industry is "navigating a complex consumer environment," Gibbs outlined. However, Taco Bell, which represents 75% of Yum Brands' U.S.
profit, remains a powerhouse that "is thriving," he said. In the fourth quarter, Yum Brands expects core operating profit growth in the mid- to high-single-digit range, excluding contributions from an extra week, Chief Financial Officer Chris Turner explained on the call. Core operating profit was up 3% in the third quarter..