Yum Brands Rallies After Pizza Hut Turnaround Helps Fuel Growth

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(Bloomberg) -- Yum! Brands Inc.’s Pizza Hut, which has underperformed Domino’s Pizza Inc. and Papa John’s International Inc. for years, is finally staging a comeback.

The chain saw sales jump in the third quarter, surprising analysts. Yum also got strong results from its Taco Bell and KFC divisions, helping overall earnings top projections and sending the stock on its biggest rally in more than two years.

Yum is relying more heavily on its U.S. operations since spinning off its Chinese business last year -- and that puts more emphasis on Pizza Hut, which had struggled in recent years amid stiff competition with other major pizza chains.

The turnaround follows a makeover at the restaurant, which was founded in 1958 as a sitdown pizza chain. It’s now making a major push to become more of a delivery source, directly taking on Domino’s and Papa John’s. The company said in July that it was hiring 14,000 drivers in a bid to play catch-up in an industry that thrives on convenient ordering.

Sales gained 3 percent at Pizza Hut, and 1 percent on a same-store basis. Analysts had predicted a 0.5 percent drop. It was the first time that metric was positive in five quarters.

Yum’s shares surged as much as 7.5 percent to $79.88, the biggest intraday gain since February 2014. The stock had climbed 17 percent this year through the close of trading on Wednesday.

The nascent rebound at Pizza Hut comes amid a sales slowdown at Papa John’s. The chain posted a same-store sales gain of 1 percent in North America for the most recent quarter. That equaled Pizza Hut, but missed analyst estimates.

Papa John’s founder, John Schnatter, said on Wednesday that the national-anthem protests that have roiled the NFL have been hurting the company’s results. The chain is a major sponsor of the league, which has seen a drop in television ratings.

Yum Chief Executive Officer Greg Creed said on Thursday that Pizza Hut isn’t seeing an impact from the ongoing protests by players.

Taco Bell and KFC remain bigger sources of growth for Yum. Same-store sales gained 3 percent at the Mexican-themed chain, topping an estimate of 2.5 percent. They jumped 4 percent at KFC. That compared with a 2.7 percent projection, according to Consensus Metrix.

Yum’s third-quarter earnings amounted to 68 cents a share, excluding some items. That was a penny more than Wall Street expected. Revenue came in at $1.44 billion, compared with a $1.39 billion projection.

©2017 Bloomberg L.P.

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