February 6, 2020 / 1:58 PM / 22 days ago

Yum Brands misses sales, profit estimates as Pizza Hut battles rivals; shares drop

(Reuters) - Yum Brands Inc (YUM.N) shares fell 4.7% after it reported quarterly same-store sales and profit that missed analyst expectations on Thursday, as stiff competition took a bite out of sales at its Pizza Hut chain in the United States.

Chief Executive Officer David Gibbs said on a conference call that the outbreak of a deadly coronavirus in China would also be a headwind this year.

Yum lost 5 cents per share of its earnings in the fourth quarter because of a sharp drop in the value of its stake in food delivery platform Grubhub Inc (GRUB.N), which faced strong rivals.

Pizza Hut is struggling to keep its market share amid rivalry from Domino’s Pizza (DPZ.N), as well as food-delivery apps that offer a wide selection of restaurants to choose from.

“Obviously, there’s a lot of work to be done there,” Gibbs said.

The pizza chain, which missed Wall Street expectations for sales growth in six of the past eight quarters, has been a weak spot for Yum, even as its other chains, KFC and Taco Bell, continue to outperform.

“For so many years, people associated takeout and delivery solely with pizza. And now.. these online delivery companies have expanded the universe of what people take into consideration when they order out,” said Doug Ciocca, chief executive officer of Kavar Capital Partners, which holds Yum shares.

To fight competition, Pizza Hut has introduced new concepts such as heated lockers that allow diners to pick up online orders from restaurants and is testing plant-based meat toppings.

Comparable sales at the chain fell 2% in the fourth quarter, worse than analysts’ expectations for a 0.71% drop, according to IBES data from Refinitiv.

Overall, sales at Yum’s restaurants open at least a year climbed 2%, below the Wall Street estimate of 2.26%.

Sales grew 4% at established Taco Bell restaurants and 3% at KFC, both beating estimates.

This year, Yum’s forecast is clouded by uncertainty from choppiness related to its largest U.S. Pizza Hut franchisee, as well as the potential impact of the coronavirus outbreak in China and elsewhere.

However, it is not likely to be hit as hard as other companies, including Yum China (YUMC.N), which was spun off into a separate company in 2016.

Globally, Yum Brands surpassed 50,000 restaurants in 2019. It added 2,040 new units during the year, an average of 9 gross new restaurants opened per day.

FILE PHOTO: The sign at a Pizza Hut location, which is owned by Yum Brands Inc, is pictured ahead of their company results in Pasadena, California U.S., July 11, 2016. REUTERS/Mario Anzuoni

In the fourth quarter ended Dec. 31, net income rose to $488 million, or $1.58 per share, from $334 million, or $1.04 per share, a year earlier.

Excluding one-time items, Yum earned $1 per share, missing analysts’ estimate by 13 cents.

Total revenue rose 8.7% to $1.69 billion, above the estimate of $1.66 billion.

Reporting by Nivedita Balu in Bengaluru; Additional reporting by Hilary Russ in New York; Editing by Bernadette Baum

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