Yum! Brands is a big player in the fastfood industry. The market for this industry is growing, especially due to emerging economies where consumers have increasingly more income available to spend. However, the past years of Yum! show mixed results and there are also several trends that might have a negative impact on Yum´s revenues and hence need to be considered.
Who or What is Yum! Brands?
Yum! Brands was founded 1997. At that time, it was a spin-off from PepsiCo under the name Tricon Global Restaurants. The company changes its name to Yum! Brands in 2002. End of 2016, Yum! China was seperated from Yum! Brands. Today, the company has a market capitalization of 34 billion Euros.
Due to Corona, the number of employees working for Yum! Brands declinded from 34,000 in 2019 to only 15,000 in 2020. This was a 56% decline of its workforce!
Even before Corona, Yum! Brands had stagnating revenues. In the years 2018 to 2020, revenues were about 5.7 billion Euros. In addition, profits decreased in the same period. While profits in 2018 were 2 billion Euros, they decreased to 1.6 billion Euros in 2019, and to only 1.3 billion Euros a year after.
Since the first lockdown in Q1 2020, however, the net profit increased every quarter. The latest report from end of Q2 2021 reports a net profit of 1.13 billion Euros over the past 12 months.
In 2020, Yum! Brands made 2.52 Euros earnings per share. For 2021, 3.84 Euros are expected.
What Would you Buy with Yum! Brands?
Yum! Brands ownes more than 50,000 restaurants in more than 150 countries. Yum! Brands owns the following brands:
- KFC
- Pizza Hut
- Taco Bell
- Wing Street
- Little Sheep Hot Pot
- East Dawning
What are Arguments to Invest in Yum! Brands?
Although the company itself is rather unknown, it owns a list of very famous brands. KFC, Pizza Hut, and Taco Bell are very famous and have strong market positions.
Is the level of diversification good or bad? Yum! Brands has a medium diversification. Compared with McDonalds, which is just one brand, it is more diversified. Compared with PepsiCo, which provides a broad scope of health and unhealthy beverages and food, it is less diversified (mainly only fastfood).
Surely, that comparison is not totally fair, as I am comparing a restaurant company with a food & beverages company. Still, I hope that you see my point.
What Risks are Associated with Yum! Brands Shares?
A major risk to fast food companies is surely the trend to healthier food. Yum! Brands, but also competitors, such as McDonalds, need to address that change. This could include the provision of more organic food, vegetarian alternatives, usage of fairtrade ingredients etc. So far, I would not associate any of Yum!´s brands with that.
Generally, consumer preferences can be impacted by scandals (e.g., food quality), by influencers, or by new trendy brands.
Especially compared to food & beverages companies, such as PepsiCo, I see a higher risk with Yum. Because Yum is not that much diversified, not addressing such trends sufficiently, they could have a serious impact on Yum´s revenues.
Taking an objective approach to the risk of a share, we consider the share´s beta. It is an indicator that measures the relative movements (up and down) of a share compared to the overall market. If the indicator is over 1.0, the share is generally more risky than the average market. If the indicator is below 1.0, the share is less risky. This is also called, a “defensive” share.
The 5-years-beta of Yum! Brands is 1.04.
What are the Characteristics of Yum! Brands Shares?
Yum! Brands paid 1.61 Euro per share as dividends in 2020, which was equivalent to 1.73%. For 2021, 1.72 Euros are expected, which would equal about 1.49% (based on today´s share price).
Let´s take a look at the share price development next:
- Last 3 months: +16%
- Last 12 months: +43%
- Last 3 years: +57%
In order to compare those results with the broad market, we take a look at the MSCI World:
- Last 3 months: +10%
- Last 12 months: +33%
- Last 3 years: +49%
Compared with the MSCI World, Yum! Brands shows a stronger performance across all measured time periods. Personally, I also like that the performance is not way too much better, because that could mean that it is not sustainable. Yum!´s performance is about 30% better, which sounds like a growth rate that could be kept over a longer time period.
What trends are impacting Yum! Brands?
As described in the risks chapter, several food and lifestyle trends have an impact on Yum! as a fastfood restaurants company.
Besides, an even stronger trend might be the reason why the global fastfood industry is growing: With more people in emerging ecomomies earning more money, the overall market size for fast food increases. This holds especially true for India, China, African countries etc. The annual growth rate of the industry is therefore estimated to be 4.6% until 2026.
If a fastfood company can satisfy the consumer´s requirements for more healthy and sustainable food, it could have great and long-term growth opportunities!
What´s the Corona impact on Yum! Brands?
Naturally, Yum! Brands was heavily impacted by Corona and had to close many restaurants. At the end of Q2 2021, there were still 1% of all global restaurants closed due to the pandemic.
It should neither be a surprise that Yum´s revenues increased again since the restaurants reopened. Yum also managed to increase its digital sales in Q2 2021 by 35% compared to Q2 2020. As we can see it with other companies, that boost comes as well from the necessity to go digital.
Is Yum! Brands a sustainable company?
Yum! Brands has a whole website on sustainability. On that website, it also states its sustainability corner stones, which are:
1) 100 million Dollars investment to unlock opportunities and fight inequalities
2) Providing consumers the possibility to choose according to their preferences
3) Become carbon-neutral by 2050
4) Reduce emissions by almost 50% by 2030
Am I Investing in Yum! Brands?
Yes, I do have Yum! Brands shares. Overall, it seems to be a reliable company with a good size, different brands, and good growth ambitions.
However, the numbers of the recent years do not confirm this growth thesis and it will be interesting to see how the company develops further. If you haven´t invested yet, there might be better opportunities on the market. For instance, Linde and Walt Disney led me to a much better conclusion!