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YB

YUM BRANDS INC (YUM)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered 8% Core Operating Profit growth and Taco Bell U.S. comps +9%, while Pizza Hut remained soft; GAAP EPS was $0.90 and EPS ex-special items was $1.30 .
  • Versus S&P Global consensus, EPS ex-special items slightly beat and revenue missed: $1.30 vs $1.28 EPS*, $1.787B vs $1.851B revenue*; EBITDA was $619M vs $636M*, reflecting strong margin execution amid softer top-line*.
    Values retrieved from S&P Global.
  • Management reaffirmed FY 2025 algorithm of ~8% Core Operating Profit growth and guided Taco Bell U.S. FY margins to 24–25%; Q2 profit growth to be lower due to convention costs with second-half weighted profit growth .
  • Strategic catalysts: accelerating Byte by Yum! adoption and an industry-first NVIDIA AI partnership to scale voice AI, computer vision, and restaurant intelligence across brands .

What Went Well and What Went Wrong

What Went Well

  • Taco Bell U.S. delivered +9% same-store sales and +16% operating profit growth, underscoring category-leading value and digital engagement (digital mix 42%) .
  • KFC International posted accelerating comps (+3% YoY) with 528 gross openings; traffic grew low-single digits globally and China delivered its ninth consecutive quarter of traffic growth .
  • Byte by Yum! momentum: Pizza Hut U.S. achieved its highest-ever Super Bowl digital sales per restaurant; leadership announced a partnership with NVIDIA to accelerate AI deployments across the system .

What Went Wrong

  • Pizza Hut system sales declined (−4% reported, −3% ex-FX), comps −2% and operating profit fell 20%, pressured by U.S. competition and franchise transition and tech spending timing (−7 pts and −3 pts impact, respectively) .
  • Company-wide GAAP EPS fell 18% YoY to $0.90 due to higher tax expense, including a foreign tax audit reserve in Mexico (+$92M), lifting the GAAP tax rate to 41% .
  • KFC operating margin compressed 660 bps YoY to 42.9% largely from lower-margin U.K. stores and seasonality; company-owned KFC margins were 9.3% vs 12.2% .

Financial Results

Consolidated Results vs Prior Periods and Consensus

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Billions)$1.598 $2.362 $1.787
GAAP Operating Profit ($MM)$520 $657 $548
Core Operating Profit ($MM)$544 $739 $586
Net Income ($MM)$314 $423 $253
Diluted EPS (GAAP)$1.10 $1.49 $0.90
Diluted EPS ex-Special Items$1.15 $1.61 $1.30
Consensus Comparison (S&P Global)Q1 2024Q4 2024Q1 2025
EPS ex-special (Actual vs Mean)$1.15 vs $1.205*$1.61 vs $1.596*$1.30 vs $1.280*
Revenue (Actual vs Mean) ($B)$1.598 vs $1.710*$2.362 vs $2.344*$1.787 vs $1.851*
EBITDA (Actual vs Mean) ($MM)586 vs 604*778 vs 762*619 vs 636*
Values retrieved from S&P Global.

Margins and Company Restaurant Performance

MetricQ1 2024Q4 2024Q1 2025
Company Restaurant Margin % (Consolidated)15.6% 17.9% 14.3%
Effective Tax Rate (GAAP)18.0% 19.9% 41.0%
Effective Tax Rate ex-Special19.4% 25.1% 19.8%

Segment Breakdown (Q1 2025 vs Q1 2024)

SegmentRestaurantsSystem Sales ($MM)SSS Growth (%)Operating Profit ($MM)Operating Margin (%)
KFC31,998 vs 30,251 (+6%) $8,340 vs $8,128 (+3% reported; +5% ex-FX) +2% vs −2% $331 vs $313 (+6%) 42.9% vs 49.5% (−6.6 pts)
Taco Bell8,723 vs 8,555 (+2%) $3,980 vs $3,597 (+11%) +9% vs +1% $241 vs $208 (+16%) 36.7% vs 34.8% (+1.9 pts)
Pizza Hut19,786 vs 19,942 (−1%) $3,028 vs $3,167 (−4% reported; −3% ex-FX) −2% vs −7% $74 vs $93 (−20%) 32.3% vs 39.0% (−6.7 pts)
Habit Burger & Grilln/aSystem Sales flat; SSS −3% n/aOP −$1 vs −$5 n/a

KPIs

KPIQ1 2025
Worldwide System Sales Growth ex-FX+5%
Worldwide Same-Store Sales Growth+3%
Unit Growth+3% (751 gross openings)
Digital System SalesApproaching $9B
Digital Mix~55%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core Operating Profit Growth (ex-FX, ex-53rd week)FY 2025“On-algorithm ~8%” (Q4 call) Reaffirm ~8%; Q2 lower due to convention; 2H > 1H Maintained
Unit GrowthFY 2025At least 4% (incl. Turkey closures); 5% ex-Turkey On track ~5% ex-Turkey; Q1 closures aligned with plan Maintained
Taco Bell U.S. Company Restaurant MarginFY 202524–25% (Live Más Live) 24–25% reiterated Maintained
FX Impact on GAAP Operating ProfitRemainder of 2025Not specified~$10M tailwind at current spot New tailwind
Interest Expense / HedgingFY 2025$500–$520M interest expense (before new hedges) New 3-year hedge saves ~$10M vs plan Improved
G&AFY 2025Mid-single-digit increase (incl. incentive reset) Ex-special G&A ~$274M in Q1; reported $302M incl. special On track
Dividend per ShareQ1 2025$0.71 (raised in Feb) $0.71 declared; Q1 summary shows $0.71 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
AI/Byte by Yum!Digital mix >50%; deployments across brands Byte by Yum! launched; U.S. brands on Byte ordering; AI personalization doubled engagement NVIDIA partnership; accelerating voice AI, computer vision, restaurant intelligence Expanding scope and adoption
Supply Chain/TariffsNot focalNot focalTariffs expected immaterial due to local sourcing Low risk
Taco Bell U.S. performance+4% comps; strong value/digital +5% comps; margins improved; $7 Luxe box +9% comps; magic formula, 24–25% FY margin guide Strengthening
KFC InternationalUnit growth +9%; comps pressured Recovery outside Middle East; +1% comps in Q4 +3% comps; broad-based traffic growth; 528 openings Recovering
Pizza Hut U.S.(1)% comps; competitive pressure Sequential improvement; value platforms −2% comps; OP impact from transitions/tech timing Challenged
Regulatory/Tax—FY ETR 23.5%; IP/tax items Foreign tax audit reserve drives GAAP ETR 41% in Q1 One-time headwind

Management Commentary

  • CEO David Gibbs: “We achieved 8% Core Operating Profit growth... Taco Bell U.S. reporting a remarkable 9% same-store sales growth and KFC International accelerating... Byte by Yum! is driving digital momentum” .
  • CFO Chris Turner: “Ex special EPS was $1.30... Taco Bell U.S. full year margins [expected] 24% to 25%... we remain confident in our plan to deliver 8% core operating profit growth this year” .
  • On NVIDIA: “We believe AI will become the new operating system of restaurants and our partnership with NVIDIA positions Yum! at the forefront of that revolution.” .

Q&A Highlights

  • KFC International sustainability: comps +3% with widespread strength; excluding China impacts, international comps +5%; no evidence of anti-American sentiment affecting stores .
  • FY 2025 back-half weighted: Q2 profit growth lower due to one-time costs; pizza transition headwinds ~$8M in Q1; overall confidence in 8% Core OP .
  • Development outlook: 751 gross openings in Q1; franchisee confidence strong; KFC second-highest Q1 gross builds; expect net Pizza Hut development to be higher YoY in next three quarters .
  • Byte commercialization: accelerating U.S. deployment with international interest; AI-driven personalization and voice AI scaling; focus remains on Yum! system before potential external commercialization .

Estimates Context

  • Q1 2025 vs Consensus: EPS ex-special $1.30 vs $1.28*, Revenue $1.787B vs $1.851B*, EBITDA $619M vs $636M* → bold margin execution with top-line shortfall; prior quarters show similar pattern (Q4 beat revenue/EPS; Q1 2024 missed both)*.
    Values retrieved from S&P Global.

Where estimates may adjust:

  • Pizza Hut U.S. softness and franchise/tech timing likely temper near-term segment profit assumptions; Taco Bell U.S. margin guide (24–25%) may lift FY EPS models, offsetting lower revenue from Pizza Hut .

Key Takeaways for Investors

  • Taco Bell U.S. continues to be the engine: double-digit system sales, expanding margins, and digital mix 42%—sustained outperformance vs U.S. QSR peers .
  • KFC International is recovering: accelerating comps, broad traffic gains, and outsized unit openings (528 in Q1), positioning FY 2025 for stronger contribution .
  • Pizza Hut remains the drag: U.S. demand competitive; near-term profit impacted by franchise transitions and tech spending timing; watch for improvement as 3D (distinctive, dependable value, disruptive innovation) strategy ramps .
  • Digital/AI inflection: Byte + NVIDIA set up structural advantages in operations, personalization, and voice AI; expect faster deployment and engagement lift across brands .
  • FY setup: Second-half weighted profit growth with Q2 noise; algorithm reaffirmed; FX tailwind ~$10M; interest rate hedge benefits ~$10M vs plan .
  • Capital returns and balance sheet: dividend maintained at $0.71; buybacks in Q1 ($228M) with net leverage ~3.9x; medium-term target ~4x .
  • Trading lens: Expect positive sentiment anchored to Taco Bell momentum and AI narrative; near-term volatility from Pizza Hut headwinds and Q2 profit phasing; bias to estimate raises on margins more than revenues .