Yum China (YUMC) Q4 Earnings and Revenues Miss Estimates
Yum China Holdings, Inc. YUMC fourth-quarter 2022 earnings and revenues missed the Zacks Consensus Estimate. On a year-over-year basis, the top line declined while the bottom line increased.
During the quarter, the company’s operations were affected by the resurgence of COVID-19 cases. The scattered outbreaks of COVID-19 in major regions of China persisted throughout the fourth quarter and stringent public health measures (mass testing and regional lockdowns) were implemented to counter the same. Reduced traveling, fewer social activities, softened consumption demand and labor shortage negatively impacted the company’s performance in the fourth quarter. The infection outbreak also resulted in reduced same-store sales.
Following the earnings announcement, shares of the company rose 0.5% during the after-hours trading session on Feb 7.
Earnings & Revenue Discussion
For fourth-quarter 2022, the company reported adjusted earnings of 13 cents. The figure missed the Zacks Consensus Estimate of 14 cents by 7.1%. The bottom line however increased 333.3% from 3 cents reported in the year-ago quarter.
Yum China Price, Consensus and EPS Surprise
Yum China price-consensus-eps-surprise-chart | Yum China Quote
Quarterly revenues of $2,088 million missed the consensus mark of $2,158 million by 3.2%. The top line declined 8.9% on a year-over-year basis. Excluding foreign currency translation, the top line increased 2% year over year.
Total system sales in the reported quarter decreased 4% year over year. System sales at KFC and Pizza Hut declined 1% and 6% (excluding foreign currency translation), respectively. Meanwhile, same-store sales dropped 4% year over year primarily due to a fall of 3% at KFC and 8% (excluding foreign currency translation) at Pizza Hut.
During fourth-quarter 2022, total costs and expenses totaled $2,047 million, up 23.5% from $1,658 million reported in the prior-year quarter.
Restaurant margin in the quarter under review was 10.4%, up 290 basis points from the year-ago quarter’s levels. The growth was primarily a result of labor productivity, operational efficiency, temporary relief as well as initiatives to create a new base level for costs.
During the quarter, adjusted operating profit totaled $40 million, surging 152% from the year-ago quarter’s levels. Adjusted net income amounted to $52 million compared with $11 million reported in the prior-year quarter.
As of Dec 31, 2022, cash and cash equivalents came in at $1,130 million compared with $1,136 million as of Dec 31, 2021. Inventories during the fourth quarter came in at $417 million compared with $321 million in the previous quarter.
During the fourth quarter, the company repurchased $52 million worth of stock at an average price of $44.13. As of Dec 31, the company had approximately $1.2 billion available for the buyback program.
The company declared a quarterly cash dividend of 13 cents per common share. The dividend will be payable on Mar 28, 2023, to shareholders of record as of Mar 7, 2023.
Unit Development and Other Updates
During fourth-quarter 2022, Yum China opened 538 net new restaurants owing to the development of the KFC and Pizza Hut brands. As of Dec 31, the company’s total restaurant count was 12,947, up by 1,159 stores year over year.
During the quarter under review, the company’s delivery contributed nearly 45% of KFC and Pizza Hut's company sales, up nearly 10 percentage points from the prior-year quarter’s levels.
Digital orders during the quarter contributed 90% to KFC and Pizza Hut's company sales compared with 88% reported in the previous-year quarter. Loyalty programs of KFC and Pizza Hut led to year-over-year growth. During the fourth quarter, KFC and Pizza Hut loyalty programs increased to more than 410 million members.
Total revenues in 2022 amounted to $9.57 billion compared with $9.85 million in 2021.
Adjusted net income in 2022 totaled $446 million compared with $525 million in 2021.
For 2022, earnings per share (EPS) came in at $1.04 per share compared with $2.28 reported in the previous year.
In 2023, Yum China expects to open approximately 1,100 to 1,300 new stores. The company anticipates solid expansion related to KFC and Pizza Hut stores along with growth of same-store sales. Capital expenditures in 2023 are anticipated in the range of $700-$900 million.
Zacks Rank & Other Key Picks
Yum China currently has a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the Zacks Retail-Wholesale sector are Brinker International, Inc. EAT, Darden Restaurants, Inc. DRI and Yum! Brands, Inc. YUM.
Brinker presently carries a Zacks Rank #2. EAT has a long-term earnings growth rate of 7.1%. Shares of the company have gained 43.5% in the past six months.
The Zacks Consensus Estimate for EAT’s 2024 sales and earnings per share suggests growth of 4.1% and 37.6%, respectively, from the year-ago period’s reported levels.
Darden presently carries a Zacks Rank #2. DRI has a long-term earnings growth rate of 9.8%. Shares of the company have gained 18.9% in the past six months.
The Zacks Consensus Estimate for DRI’s 2024 sales and EPS suggests growth of 5.5% and 10.3%, respectively, from the year-ago period’s reported levels.
Yum! Brand currently carries a Zacks Rank #2. YUM has a long-term earnings growth rate of 11.5%. Shares of the company have gained 10.6% in the past six months.
The Zacks Consensus Estimate for Yum! Brands’ 2023 sales and EPS suggests growth of 6.5% and 15.6%, respectively, from the year-ago period’s reported levels.
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