Yum's Guidance Increase Makes Up For Weak Q2 Sales, Says BTIG

Although Yum! Brands, Inc. YUM reported weaker-than-expected 2Q16 results, especially on the top line, BTIG’s Peter Saleh believes there were sufficient positive elements to support the stock.

Saleh maintains a Neutral rating on the company.

“We expect investors will be encouraged by the commentary on China comps but note that sales have been volatile and recent trends may not be sustainable for the full quarter,” the analyst mentioned.

2Q Results

The company reported its adjusted EPS for 2Q16 at $0.75, marginally ahead of the consensus and the estimate, driven by higher restaurant margins and other income but partially offset by weaker comps.

Related Link: Yum Reports Big Same-Store Sales Misses, But Chinese Sales Anticipated To Rise

China comparable sales came in flat, marginally below the estimate, with KFC slowing from its 1Q16 level and Pizza Hut remaining “competitively pressured.”

Positives And Negatives

“Comps are indicated to have recently improved, described as ‘off to a good start’ in the first weeks of 3Q16 with Pizza Hut Casual Dining returning to positive. This would suggest considerable improvement on a two-year basis given more difficult comparisons,” Saleh stated.

Comps were mostly below the estimates outside China, with a decline at Taco Bell, flat comps at Pizza Hut and in-line results at KFC. The weakness was primarily attributed to the challenging environment in the United States.

On a positive note, Yum Brands increased its core operating profit growth guidance from 12 percent to 14 percent and stated the China separation is expected to be completed by October 31.

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