Yum! Brands, Inc. (YUM) Bundle
Understanding Yum! Brands, Inc. (YUM) Revenue Streams
Understanding Yum! Brands, Inc.’s Revenue Streams
The company generates revenue through multiple streams, primarily from its franchise and company-owned restaurants, along with contributions from advertising and other services.
Breakdown of Primary Revenue Sources
| Revenue Source | 2024 (Q3) | 2023 (Q3) | % Change |
|---|---|---|---|
| Company Sales | $621 million | $510 million | 22% |
| Franchise and Property Revenues | $804 million | $796 million | 1% |
| Franchise Contributions for Advertising | $401 million | $402 million | Even |
| Total Revenues | $1,826 million | $1,708 million | 7% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate reflects an increase in total revenues from $5,040 million in 2023 to $5,187 million in 2024, marking a growth rate of 3%.
Contribution of Different Business Segments to Overall Revenue
- KFC Division: Total revenues of $2,134 million in 2024, a growth of 3% from $2,069 million in 2023.
- Taco Bell Division: Total revenues of $1,930 million in 2024, a growth of 6% from $1,822 million in 2023.
- Pizza Hut Division: Total revenues of $1,530 million in 2024, a decline of 2% from $1,560 million in 2023.
- Habit Burger & Grill Division: Total revenues of $90 million in 2024, a growth of 5% from $86 million in 2023.
Analysis of Significant Changes in Revenue Streams
In the quarter ended September 30, 2024, the company experienced a 4% decline in same-store sales across its global operations. This decline was attributed to various factors, including increased competition and changes in consumer preferences. The KFC division's same-store sales decreased by 4%, while Taco Bell's same-store sales increased by 4%.
Additionally, the impact of foreign currency translation resulted in a $3 million reduction in operating profit for the quarter ended September 30, 2024.
Overall, the company's revenue streams are diversified, with strong contributions from franchise operations, but are facing challenges in certain segments due to market dynamics.
A Deep Dive into Yum! Brands, Inc. (YUM) Profitability
A Deep Dive into Yum! Brands, Inc.'s Profitability
Gross Profit Margin: In Q3 2024, the company reported total revenues of $1,826 million compared to $1,708 million in Q3 2023, reflecting a growth of 7%. The gross profit for the same period was $619 million versus $613 million the previous year, marking a slight increase of 1%.
Operating Profit Margin: The operating profit for Q3 2024 was $619 million, yielding an operating margin of 33.9%. This compares to $613 million and an operating margin of 36% in Q3 2023. Year-to-date operating profit for 2024 stood at $1,746 million, compared to $1,709 million in 2023, showing a 2% increase.
Net Profit Margin: The net income for the quarter ending September 30, 2024, was $382 million, down from $416 million in the same quarter of 2023, resulting in a net profit margin of 20.9% compared to 24.4% the previous year. Year-to-date net income was $1,063 million, compared to $1,134 million in 2023.
Trends in Profitability Over Time
The following table summarizes key profitability metrics for Yum! Brands over the last two years:
| Metric | Q3 2024 | Q3 2023 | Year-to-Date 2024 | Year-to-Date 2023 |
|---|---|---|---|---|
| Total Revenues | $1,826 million | $1,708 million | $5,187 million | $5,040 million |
| Gross Profit | $619 million | $613 million | $1,746 million | $1,709 million |
| Operating Profit | $619 million | $613 million | $1,746 million | $1,709 million |
| Net Income | $382 million | $416 million | $1,063 million | $1,134 million |
| Net Profit Margin | 20.9% | 24.4% | 20.5% | 22.5% |
Comparison of Profitability Ratios with Industry Averages
As of 2024, the average net profit margin in the fast-food industry is approximately 10-15%. Yum! Brands' current net profit margin of 20.9% significantly exceeds this benchmark, highlighting strong profitability relative to its peers. The operating margin of 33.9% is also above the industry average, which typically ranges from 20-25%.
Analysis of Operational Efficiency
The company has managed its general and administrative (G&A) expenses effectively, with G&A expenses reported at $263 million in Q3 2024, slightly down from $267 million in Q3 2023. This represents a 1% decrease, indicating effective cost management strategies.
Furthermore, the company restaurant margin percentage for Q3 2024 was 15.8%, a slight decrease from 17.3% in Q3 2023, primarily driven by increased labor costs and operational expenses.
Overall, the operational efficiency metrics, coupled with strong gross and operating profit margins, suggest that Yum! Brands is well-positioned to maintain its profitability despite market fluctuations.
Debt vs. Equity: How Yum! Brands, Inc. (YUM) Finances Its Growth
Debt vs. Equity: How Yum! Brands Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the total debt of the company was approximately $11.169 billion, consisting of both long-term and short-term borrowings. The breakdown of the current liabilities includes:
- Short-term borrowings: $24 million
- Accounts payable and other current liabilities: $1.138 billion
The long-term debt was reported at $11.169 billion.
Debt-to-Equity Ratio and Comparison to Industry Standards
The company's debt-to-equity ratio stands at approximately 4.1 as of September 30, 2024. This is significantly higher than the industry average, which typically ranges from 1.0 to 1.5 for similar companies.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
The company has a credit rating of BB+ from Standard & Poor's and Ba2 from Moody's. Recently, in April 2024, the company refinanced its credit agreement, which was part of its strategy to manage its debt more effectively.
How the Company Balances Between Debt Financing and Equity Funding
The company aims to maintain a balanced capital structure, targeting a consolidated net leverage ratio of around 4.1x EBITDA. Approximately 96% of the total debt is fixed, with an effective interest rate of about 4.5%.
| Debt Type | Amount (in millions) | Maturity Year |
|---|---|---|
| Securitization Notes | $3,743 | 2037 |
| Subsidiary Senior Unsecured Notes | $750 | 2024 |
| YUM Senior Unsecured Notes | $4,550 | 2032 |
| Credit Agreement | $1,948 | 2029 |
| Revolving Facility | $210 | 2024 |
The company has strategically utilized its debt to fund growth initiatives while managing its equity to ensure flexibility in financing operations and returning capital to shareholders through dividends and share repurchases.
Assessing Yum! Brands, Inc. (YUM) Liquidity
Assessing Yum! Brands, Inc. (YUM) Liquidity
Current Ratio: As of September 30, 2024, the current ratio stands at 1.37, calculated from current assets of $1,625 million and current liabilities of $1,186 million.
Quick Ratio: The quick ratio is 1.15, derived from cash and cash equivalents of $457 million and accounts receivable of $708 million, against current liabilities of $1,186 million.
Working Capital Trends
Working capital, defined as current assets minus current liabilities, is approximately $439 million for 2024, indicating a healthy liquidity position. This marks a slight decrease from $432 million in 2023, reflecting stable operations despite fluctuations in sales.
Cash Flow Statements Overview
Net cash provided by operating activities for the year ended September 30, 2024, was $1,176 million, an increase from $1,155 million in 2023. This increase was primarily due to a rise in operating profit before special items and decreased interest payments.
| Cash Flow Category | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Net Cash Provided by Operating Activities | $1,176 | $1,155 |
| Net Cash Used in Investing Activities | ($292) | ($4) |
| Net Cash Used in Financing Activities | ($991) | ($921) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, cash on hand was approximately $460 million. The company maintains a $1.5 billion revolving credit facility, with $210 million drawn as of the same date. This indicates a strong liquidity position with sufficient cash reserves to meet short-term obligations.
However, the consolidated net leverage ratio stands at 4.1x EBITDA, suggesting that while liquidity is adequate, the company is carrying a significant amount of debt relative to its earnings, which could raise concerns about long-term solvency if cash flow trends do not improve.
Overall, the liquidity position appears robust, supported by consistent operational cash flow generation, although careful monitoring of debt levels and cash flow adequacy is warranted moving forward.
Is Yum! Brands, Inc. (YUM) Overvalued or Undervalued?
Valuation Analysis
When assessing whether Yum! Brands, Inc. is overvalued or undervalued, key financial ratios play a crucial role. Below is a detailed examination of the Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 30.2, calculated based on a trailing twelve months (TTM) earnings per share (EPS) of $3.73.
Price-to-Book (P/B) Ratio
The P/B ratio is recorded at 5.6, with the book value per share at $18.95.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is noted at 12.8, with an enterprise value of $33 billion and EBITDA of $2.57 billion.
Stock Price Trends
Over the past 12 months, the stock price has experienced fluctuations, starting at a price of $122.50 a year ago. As of the latest trading session, the stock price is $112.00, reflecting a decline of approximately 8.3%.
Dividend Yield and Payout Ratios
The dividend yield for Yum! Brands, Inc. is currently 1.8%, based on an annual dividend of $2.01 per share. The payout ratio stands at 53.7%, indicating a stable approach to returning value to shareholders while retaining enough earnings for growth.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a mixed outlook, with 12 analysts rating the stock as a "Buy", 8 as a "Hold", and 3 as a "Sell".
| Metric | Value |
|---|---|
| P/E Ratio | 30.2 |
| P/B Ratio | 5.6 |
| EV/EBITDA Ratio | 12.8 |
| Current Stock Price | $112.00 |
| Stock Price 1 Year Ago | $122.50 |
| Dividend Yield | 1.8% |
| Annual Dividend | $2.01 |
| Payout Ratio | 53.7% |
| Analyst Buy Ratings | 12 |
| Analyst Hold Ratings | 8 |
| Analyst Sell Ratings | 3 |
This analysis underscores the importance of ratios and market expectations in determining the valuation of Yum! Brands, Inc. in 2024.
Key Risks Facing Yum! Brands, Inc. (YUM)
Key Risks Facing Yum! Brands, Inc. (YUM)
The financial health of Yum! Brands, Inc. is influenced by various internal and external risk factors. Below are key risks that investors should consider:
Industry Competition
The quick-service restaurant (QSR) industry is highly competitive. The company faces pressure from both established players and new entrants, leading to potential market share erosion. In 2024, the company reported a same-store sales decline of 2% year to date, reflecting competitive pressures.
Regulatory Changes
Changes in food safety regulations and labor laws can significantly impact operational costs. For instance, wage increases in various jurisdictions could affect profitability. The effective tax rate for the quarter ended September 30, 2024, was 23.8%, up from 17.7% in the prior year, indicating the impact of regulatory changes on financial performance.
Market Conditions
Economic downturns can adversely affect consumer spending in the restaurant sector. The company noted that economic conditions in certain markets have led to a low single-digit headwind to same-store sales growth. Additionally, foreign currency fluctuations have negatively impacted operating profit, with a reported $26 million adverse effect year to date.
Operational Risks
Operational challenges, including supply chain disruptions and labor shortages, can affect service levels and cost structures. The company reported an increase in restaurant operating costs, which pressured margins, with a company restaurant margin percentage of 12.2% for the year to date. Furthermore, the ongoing conflict in the Middle East has caused temporary closures of approximately 275 restaurants.
Financial Risks
As of September 30, 2024, the company had total debt of $11 billion, with a consolidated net leverage ratio of 4.1x EBITDA. The company maintains a $1.5 billion revolving credit facility, of which $210 million was outstanding. This high level of debt poses risks in a rising interest rate environment, with an effective interest rate of approximately 4.5%.
Strategic Risks
Strategic decisions, including acquisitions and refranchising, carry inherent risks. The acquisition of KFC U.K. and Ireland restaurants in 2024 amounted to $174 million, which could impact cash flows and operational focus. The company also reported a refranchising gain of $31 million year to date.
Mitigation Strategies
To address these risks, the company has implemented several strategies, including:
- Investing in technology to enhance operational efficiency and improve customer experience.
- Maintaining a diversified portfolio of brands to mitigate exposure to any single market or product line.
- Engaging in active supply chain management to ensure resilience against disruptions.
| Risk Factor | Impact | Current Financial Metric |
|---|---|---|
| Same-Store Sales Decline | Market Share Erosion | -2% (Year to Date) |
| Effective Tax Rate Increase | Higher Operational Costs | 23.8% (2024) |
| Total Debt | Financial Leverage Risk | $11 Billion |
| Temporary Restaurant Closures | Revenue Loss | 275 Restaurants |
| Operating Margin | Profitability Pressure | 12.2% (Year to Date) |
Future Growth Prospects for Yum! Brands, Inc. (YUM)
Future Growth Prospects for Yum! Brands, Inc.
Analysis of Key Growth Drivers
Yum! Brands, Inc. is positioned for significant growth driven by various factors, including product innovations, market expansions, and strategic acquisitions.
- System Sales: The total system sales for the quarter ended September 30, 2024, were $4,008 million, representing a 5% increase from the previous year.
- Same-Store Sales Growth: The same-store sales growth for the quarter was 4% compared to 8% in the prior year.
- Franchise Growth: The company experienced a 2% increase in franchise units, totaling 58,775 as of September 30, 2024.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth is projected to remain robust, with estimates suggesting a compound annual growth rate (CAGR) of approximately 5% for the next three years, primarily driven by unit growth and same-store sales improvements.
| Year | Projected Revenue (in millions) | Projected EPS |
|---|---|---|
| 2024 | $5,187 | $3.73 |
| 2025 | $5,457 | $4.02 |
| 2026 | $5,730 | $4.28 |
Strategic Initiatives or Partnerships
The company has undertaken several strategic initiatives that may drive future growth:
- Acquisition of KFC U.K. and Ireland: In 2024, Yum! Brands completed the acquisition of KFC U.K. and Ireland restaurants, enhancing its market presence.
- Digital Innovations: Increased investment in digital platforms and delivery services is expected to attract more customers and improve sales.
- Partnerships: Collaborations with third-party delivery services aim to enhance reach and convenience for customers.
Competitive Advantages
Yum! Brands has several competitive advantages that position it for future growth:
- Strong Franchise Model: Approximately 98% of restaurants are franchised, reducing capital expenditure and leveraging franchisee expertise.
- Brand Portfolio: The company operates well-known brands such as KFC, Taco Bell, and Pizza Hut, which provide a diversified revenue stream.
- Global Presence: With operations in over 155 countries, Yum! Brands benefits from geographical diversification.
Financial Highlights
Financial performance indicators further illustrate the company's growth potential:
| Metric | 2024 | 2023 | % Change |
|---|---|---|---|
| Total Revenues | $5,187 million | $5,040 million | 3% |
| Net Income | $1,063 million | $1,134 million | (6%) |
| Operating Profit | $1,746 million | $1,709 million | 2% |
These insights reflect the company's strategic positioning and growth capabilities as it navigates the competitive landscape.
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Updated on 16 Nov 2024
Resources:
- Yum! Brands, Inc. (YUM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Yum! Brands, Inc. (YUM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Yum! Brands, Inc. (YUM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.