This large restaurant operator runs 45,000 stores across 140 countries and has improved its results since spinning off its Chinese operations. In the most-recent quarter, earnings increased 8.6%.
The company recently invested $200 million in an online delivery service, which has already improved its profitability. It also continues to sell its locations to franchisees to lower its costs. All of that contributes to this stock’s bright outlook and its solid dividend.
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YUM! BRANDS INC. $92 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 313.0 million; Market cap: $28.8 billion; Price-to-sales ratio: 5.0; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.yum.com) operates 45,000 restaurants in over 140 countries. Its main banners are KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). The U.S. accounts for 45% of its sales and earnings.
The company continues to sell stores to franchisees. That lowers its operating expenses and frees Yum from maintaining these outlets. The company wants to see franchisees operate 98% of the outlets by the end of 2018 compared to today’s 97%.
Growth Stocks: Same-store sales up 2% and earnings up 8.6%
Due to that strategy, Yum’s sales in the quarter ended September 30, 2018, fell 5.2%, to $1.39 billion from $1.44 billion a year earlier. However, same-store sales rose 2% (excluding currency rates) as gains at KFC (up 3%) and Taco Bell (up 5%) offset a 1% decline at Pizza Hut.
Yum’s earnings rose 8.6%, to $454 million from $418 million; per-share earnings rose 18.6%, to $1.40 from $1.18, on fewer shares outstanding. The company recently invested $200 million in GrubHub Inc. (New York symbol GRUB), an online food delivery service, and the latest earnings include a $94 million gain in the value of that investment. Changes to the U.S. tax code also reduced Yum’s tax rate to 15.1% from 20.2% a year earlier.
The company should earn $3.67 a share for all of 2018. The stock trades at 25.1 times that estimate, which is a reasonable multiple in light of Yum’s well-known plans and improving profitability. Its $1.44 dividend yields 1.6%.
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