YUM Brands 2025 Q1 Earnings Misses Targets as Net Income Falls 19%

YUM! Brands (YUM) reported its fiscal 2025 Q1 earnings on May 07th, 2025. The company missed analyst expectations on both revenue and earnings, with revenue falling short by 3.4% and EPS missing estimates by 31%. Despite these misses, Yum! Brands reiterated its long-term guidance of 8% core operating profit growth for the full year, though it anticipates lower profit growth in the first half of 2025 due to one-time expenses. The company remains focused on technological advancements and international expansion to drive future growth.

Revenue
YUM! Brands experienced an 11.8% increase in total revenue, reaching $1.79 billion in Q1 2025, compared to $1.60 billion the previous year. The KFC Division contributed significantly with $773 million, while Taco Bell Division followed with $657 million. Pizza Hut Division generated $231 million, and Habit Burger & Grill Division added $128 million. Corporate and Unallocated accounted for a negligible $-1 million, consolidating the total revenue to $1.79 billion.

Earnings/Net Income
YUM! Brands saw its EPS decline by 18% to $0.91, down from $1.11 in Q1 2024. Additionally, net income decreased to $253 million, marking a 19.4% drop from $314 million the previous year. The company has remained profitable for over two decades, showcasing strong operational resilience. Despite this, the decreased EPS signals challenges in maintaining profitability.

Price Action
The stock price of YUM! Brands has edged up 0.90% during the latest trading day, has edged down 0.64% during the most recent full trading week, and has edged up 1.12% month-to-date.

Post-Earnings Price Action Review
The strategy of purchasing YUM! Brands shares following a quarter-over-quarter revenue drop and holding for 30 days has resulted in subpar performance over the past five years. This strategy yielded returns of -1.79%, significantly underperforming the benchmark return of 84.08%. The excess return was notably negative at -85.87%, with the compound annual growth rate (CAGR) standing at -0.36%, indicating substantial negative returns. Additionally, the strategy faced a maximum drawdown of -12.50% and had a Sharpe ratio of -0.05, reflecting high risk and unfavorable returns.

CEO Commentary
David Gibbs, CEO of Yum! Brands, noted that "sales started soft in January and improved through February and March," indicating a recovery trend within the U.S. market. He highlighted Taco Bell's impressive 9% same-store sales growth as a standout performance, attributing it to effective menu items and overall consumer traffic across income cohorts. However, he acknowledged challenges at Pizza Hut, where same-store sales declined more than expected. Gibbs expressed a cautious optimism, stating that despite intense competition, the recent revenue and transaction growth trends in the U.S. are promising. He also mentioned the upcoming leadership transition as part of the company's strategic direction.

Guidance
Yum! Brands reiterated its long-term target of achieving 8% core operating profit growth for the full year. However, the company anticipates lower profit growth in the first half of 2025, primarily due to one-time expenses, including a global franchise convention. The management expects revenue to grow approximately 6% annually over the next three years, contrasting with the 9.8% growth forecast for the broader Hospitality industry in the U.S.

Additional News
Recent non-earnings news from Yum! Brands includes significant C-level changes, with CEO David Gibbs announcing his plans to retire in early 2026. The company is actively reviewing candidates for his successor to ensure a smooth leadership transition. Additionally, Yum! Brands is accelerating its AI innovation through a notable industry-first collaboration with NVIDIA, aiming to enhance operational efficiency and customer experience. Moreover, Yum! Brands has been making strategic adjustments, including designating two brand headquarters in the U.S. to foster increased collaboration and growth within its portfolio. These developments highlight Yum! Brands' commitment to strengthening its leadership team and leveraging technology for future growth.