Yum! Brands, Inc. (NYSE: YUM)
After the close on Wednesday, Yum! Brands Inc. (YUM) reported weaker than expected earnings that sent the shares tumbling 15% in the post market session. Wall Street was expecting earnings of $1.06 per share on $3.67 billion in revenue but instead was disappointed with earnings at just $1 per share on $3.43 billion in revenue. This did not sit well with traders, as shares were absolutely crushed and continued to sell off the next day when the market opened. However, some positive news that did come out of the earnings report is that YUM said they will be raising their quarterly dividend 12% to 46 cents per share. According to the earnings call, there is a lot of concern and unexpected issues in China that have caused some setbacks.
CEO Greg Creed stated:
“Let me start by being really clear. We all and I personally take full accountability for our results in China. And while there is clearly a macro softening going on including headwinds from unexpected foreign exchange pressures and yes, the online ordering aggregators who are delivering for mom and pops are in a death battle for supremacy with heavy discounting and the malls look more like fancy food courts than shopping centers, the simple facts are that the economy there is still growing and there is every reason and no excuses to why we should not perform better. I also want you to know that our new China CEO Micky Pant and his team also get it and as I’ll detail are taking significant measures to get sales, traffic and profits back to historic levels.” SeekingAlpha
This was a crushing blow to YUM investors and may take a while to recover from. They will really need to step up their game in China and figure out solutions for the setbacks that have presented themselves and until they do, I wouldn’t be looking to go long this stock.
YUM closed Tuesday at $83.42 but after their disappointing earnings release the price fell all the way to the high $60s before stabilizing off, almost a 20% drop! Shares opened the following day at $69.81 and quickly sold off on high volume again as buyers were on sidelines. Prices stayed between $69-67 price level and closed the day at $67.69, an 18.8% drop from yesterday’s close. Analysts have an average price target of $83.50 and even though there is some concern in the China business, Credit Suisse upgraded YUM from an underperform to a neutral rating, however, they did slash their price target from $86 to $75 per share, a 12% decrease.
YUM started off the year on a tear but started to slow down as we entered the summer season and hit highs in May at $95.90. Prices have slowly pulled back and below the 200 day moving average as the market began to soften up and with the help of the latest earnings release that pushed YUM to new lows of $66.35 on strong volume. Long-term resistance will come in at $70 and $71.39 while support will come in at $66. We’ll need to keep an eye on price action at these levels for consolidation before the next move, which may not happen until we get some confirmation on YUM’s situation improving in China and until we do I am on the sidelines with this one.
About Yum! Brands, Inc.
Yum! Brands, Inc. is a quick service restaurant company. The company operates its business through five operating segments: YUM China, YUM India, KFC Division, Pizza Hut Division and Taco Bell Division. The YUM China, which includes all operations in mainland China. The YUM India, which includes all operations in India, Bangladesh, Nepal and Sri Lanka. The KFC Division, which includes all operations of the KFC concept to outside of China Division and India Division. The Pizza Hut Division, which includes all operations of the Pizza Hut concept outside of China Division and India Division. The Taco Bell Division, which includes all operations of the Taco Bell concept outside of India Division. The company develops, operates, franchises and licenses a worldwide system of restaurants, which prepare, package and sell a menu of competitively priced food items. Its each concept has proprietary menu items and emphasizes the preparation of food with various ingredients, as well as recipes and special seasonings to provide appealing and tasty food. Its traditional restaurants feature dine-in, carryout and drive-thru or delivery service. The company’s non-traditional units, which are principally licensed outlets, including express units and kiosks which have a more limited menu and operate in non-traditional locations such as malls, airports, gasoline service stations, train stations, subways, convenience stores, stadiums, amusement parks and colleges. Yum! Brands were founded in 1997 and is headquartered in Louisville, KY. MarketWatch