Yum Brands: 4th-Quarter Earnings Insights

Yum Brands Inc. (NYSE:YUM) released its fourth-quarter 2020 financial results before the market opened on Feb. 4. The company's top and bottom lines surpassed analysts' expectations, despite weak same-store sales.

Shares surged 0.32% in premarket trading to $105.07 following the earnings announcement.

Brief summary of the quarter

The restaurant operator, which owns the Taco Bell, KFC and Pizza Hut brands, reported fourth-quarter adjusted earnings per share of $1.15, which exceeded analysts' estimates of $1.01. Revenue stood at $1.74 billion, which was up 3% year over year and marginally surpassed expectations of $1.72 billion. On the global front, the company recorded a comps decline of 1%.

Reflecting on 2020 and how digital sales made up for some of the losses from physical stores, CEO David Gibbs said:

"Yum! enters 2021 a stronger company primed to profitably grow system sales this year and beyond. Despite the challenges of 2020, our full-year results demonstrated our resilience and validated the strategies we put in place during the transformation of Yum!. We intensified our focus on leveraging our scale and reinforcing our growth model, by accelerating our investments in digital and technology to enhance the customer experience and unit economics. In 2020, digital sales hit a record of $17 billion, about a 45% increase over the prior year and a testament to our brands' ability to quickly meet new consumer needs. I am more confident than ever in the ability of our teams and franchisees to compete and win in a rapidly changing world."

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Segment details

KFC, the company's largest brand, recorded a 2% decline in same-store sales from the year-ago quarter. Likewise, the operating margin contracted 1.4 percentage points to 37.6% as the international franchise bad debt recoveries were more than offset by higher general and administrative expenses and negative franchise comps. The segment posted 2% growth in systemwide sales in the U.S. Similarly, in China, systemwide sales were up 3%, barring currency translations.

Pizza Hut's quarterly comparable store sales fell 1%, which is an improvement from the 3% decline reported in the previous quarter. The operating margin plunged 1.5 percentage points to 28.7% due to declining global comps, which was only partially offset by U.S. franchise bad debt recoveries. The segment saw systemwide sales decline of 6% in the U.S., while in China, the metric declined 3%.

Taco Bell reported a 1% increase in same-store sales worldwide. The sector's operating margin increased 0.1 percentage points to 33.8%, driven by lower general and administrative costs as well as franchise and property expenses. The given metric was also aided by higher international comps.

Key developments

The company has expanded delivery to 35,000 restaurants through aggregator partnerships. Yum is focusing more on multiple partnerships rather than single partnerships as the former allows customers to order from whichever channel they prefer.

At the quarter's end, roughly 98% of Yum restaurants were operational. During the quarter, the company opened 227 net new restaurants.

Disclosure: I do not hold any positions in the stocks mentioned.

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