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KFC Parent Yum Brands Quarterly Earnings Top Views; Cyclospora Outbreak Impacts Taco Bell Sales

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KFC Parent Yum Brands Quarterly Earnings Top Views; Cyclospora Outbreak Impacts Taco Bell Sales

Yum Brands (YUM) reported stronger-than-expected second-quarter earnings on Thursday, while revenue fell short as a recent food-safety issue weighed on demand at Taco Bell.

The fast-food restaurant operator's adjusted earnings rose to $1.62 a share for the June quarter from $1.44 the year before, ahead of the FactSet-polled consensus of $1.58. Overall revenue climbed 12% to $2.17 billion, but missed the Street's view for $2.18 billion.

Earlier this month, the US Food and Drug Administration announced an investigation into a multi-state Cyclospora outbreak. The FDA linked the diarrhea-causing infection to certain iceberg lettuce from Mexico served at Taco Bell restaurants. Taco Bell said it removed the affected Taylor Farms lettuce from its restaurants and supply chain nationwide.

Taco Bell has seen a "meaningful near-term sales impact," Yum Brands Chief Executive Chris Turner said during an earnings call, according to a FactSet transcript. "We expect the sales impact to be temporary."

"Elevated uncertainty initially weighed on consumer demand, and since then, consumers have become increasingly aware that this is an industry wide issue, not an issue specific to Taco Bell," Turner told analysts.

Worldwide same-store sales grew 3%, driven by 2% and 7% gains at KFC and Taco Bell, respectively. Pizza Hut decreased 1%.

US same-store sales declined 2% at Pizza Hut and gained 7% at Taco Bell.

Last month, Yum Brands agreed to sell Pizza Hut in two transactions worth about $2.7 billion.

Last week, Domino's Pizza (DPZ) reported second-quarter revenue above market estimates, driven by order count growth, while the pizza restaurant chain's earnings missed expectations.

The US restaurant and food distribution companies likely saw a mixed second quarter, Morgan Stanley said in a note earlier this month, with largely stable industry trends that are masking "signs of strain."

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