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YB

YUM BRANDS INC (YUM)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 delivered 10% revenue growth to $1.93B and EPS excluding Special Items rose 7% to $1.44, with record digital mix of 57% and >$9B digital system sales; Taco Bell SSS +4% and KFC International unit growth remained strong, while Pizza Hut lagged .
  • Modest misses versus S&P Global consensus: EPS ex-SI $1.44 vs $1.46*, revenue $1.933B vs $1.936B*, EBITDA $692M* vs $700M*, driven by Pizza Hut timing items and higher G&A; CFO expects Q4 profit growth to outpace Q3 and still targets 8% Core OP growth ex-53rd week for FY25 .
  • Guidance and outlook: Taco Bell U.S. restaurant margins reaffirmed at 24–25% for 2025, G&A to the high end of prior mid‑single‑digit growth (Q3 up double digits on tough comp), interest expense guide $500–$520M, FX tailwind ~$20M for remainder of 2025 .
  • Strategic catalysts: CEO succession to Chris Turner (Oct 1, 2025), acceleration of Byte by Yum! and AI deployment (voice AI, ByteConnect) supporting digital sales, and continued development momentum (871 gross openings; 566 at KFC) .

What Went Well and What Went Wrong

What Went Well

  • Digital and AI momentum: “Digital mix reaching 57%… KFC’s digital sales grew 22%” and “Over 200 million AI-generated communications… up to 5x incrementality” highlighting Byte’s impact on top/bottom line .
  • Taco Bell outperformance: U.S. SSS +4% (both U.S. and International +4%) with system sales +6% and strong innovation/beverage initiatives; management: “Taco Bell delivered 4% same store sales growth outpacing the limited service category” .
  • Development engine: 871 gross openings (KFC 566 across 58 countries; Pizza Hut 254; Taco Bell 50) underpinning unit growth and long-term algorithm .

What Went Wrong

  • Pizza Hut softness: SSS −1%, operating profit −15% (y/y) with headwinds from timing of tech spend (−3 pts), franchise transitions (−2 pts), and bi‑annual convention costs (−2 pts) .
  • KFC U.S. pressure: U.S. system sales −8% ex‑FX and SSS −5% amid value perception challenges (management is repositioning value and relevance) .
  • Consolidated restaurant margin down y/y: Company restaurant margin 16.3% vs 17.8% last year, as CFO cited an unfavorable commodity lap at Taco Bell and the mix impact of acquired KFC U.K. stores .

Financial Results

Headline P&L trends (chronological)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($MM)$2,362 $1,787 $1,933
Diluted EPS (GAAP)$1.49 $0.90 $1.33
EPS ex Special Items$1.61 $1.30 $1.44
Operating Profit ($MM)$657 $548 $622
Company Restaurant Margin %17.9% 14.3% 16.3%

Actuals vs S&P Global consensus (Q2 2025)

MetricActualConsensus*Surprise
EPS (EPS ex Special Items)$1.44 $1.46*−$0.02
Revenue ($MM)$1,933 $1,938.6*−$5.6
EBITDA ($MM)$692.0*$700.2*−$8.2

Values retrieved from S&P Global.*

Segment performance (Q2 2025 reported)

MetricKFCTaco BellPizza Hut
System Sales ($MM)$8,721; +6% reported (+5% ex‑FX) $4,275; +6% reported (+6% ex‑FX) $3,116; (1%) reported ((1%) ex‑FX)
SSS Growth+2% +4% −1%
Restaurants (ending)32,369 (+5% y/y) 8,756 (+2% y/y) 19,768 (even y/y)
Operating Profit ($MM)$365 $262 $80
Operating Margin43.0% 36.8% 33.5%

Key KPIs

KPIQ2 2025
Worldwide system sales growth ex‑FX+4%
Worldwide SSS growth+2%
Unit growth+3% (871 gross openings)
Digital system sales>$9B; digital mix ~57%
Core Operating Profit ($MM)$646; +2% y/y
Share repurchase~$108M in Q2; $336M YTD
Net leverage3.8x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core Operating Profit growth (ex 53rd week)FY2025~8% (reaffirmed Q1) “Still expect” ~8%; Q4 > Q3 on profit growth Maintained
Taco Bell U.S. restaurant marginFY202524–25% 24–25% Maintained
G&A ex‑special, ex‑FXFY2025Mid‑single‑digit increase (prior guide referenced) High end of that range; Q3 up double digits; Q4 near low end Tightened upward within range; phasing specified
Interest expense (net)FY2025N/A$500–$520M New
FX impact (GAAP OP)Remainder of FY2025~$10M tailwind (as of Q1) ~$20M tailwind Raised
Unit growthFY2025~5% ex‑Turkey ~4% headline; ~5% ex‑Turkey; meet/exceed last year’s gross builds Clarified headline vs ex‑Turkey
Tariff exposure to developmentFY2025Tariffs immaterial system‑wide Limited exposure; ~90% of development outside U.S. Maintained
DividendOngoing$0.71 per share $0.71 per share (declared Aug 21) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
AI/Byte by Yum!Byte launched; 25k stores with ≥1 product; NVIDIA partnership announced Speed-ups like ByteConnect (9→3 months), voice AI in 600 stores; record 57% digital mix; 200M+ AI communications Accelerating deployment and impact
Taco Bell product/beveragesQ1: SSS +9%, crispy chicken, Live Más Café test +40% sales lift SSS +4%; scaling Live Más Café to 30 sites by YE25; $5B beverage goal by 2030 Scaling innovation; beverage pillar expanding
KFC global vs U.S.Q1: KFC Int’l SSS +3%; value-led recovery; U.S. modest recovery Int’l SSS +3%; U.S. system sales −8% ex‑FX; new “comeback” value push Int’l solid; U.S. repair mode
Pizza Hut U.S.Q1: pressured; profit hit by franchise transitions, tech timing SSS −1%; OP −15%; value and app push; cost timing headwinds Stabilizing efforts; near-term headwinds
Tariffs/supply chainQ1: tariffs immaterial to system Exposure limited; 90% development ex-U.S. Steady; low risk
Taxes/special itemsQ1: tax reserve in Mexico drove EPS impact Special items tax expense reserve in Mexico; ETR ex-SI 23.2% One-offs; normalized ETR ex-SI stable

Management Commentary

  • CEO on Q2 performance and succession: “System sales grew 4%… digital mix reaching 57%… I couldn’t be more confident passing the torch to Chris Turner” .
  • CFO on margins and outlook: “Total restaurant level margins were 16.3%, down roughly 150 bps y/y due to an unfavorable commodity lap at Taco Bell and KFC’s higher mix from U.K. stores… We still expect to achieve 8% core operating profit growth… with Q4 in double digits” .
  • On Byte and AI scale: “ByteConnect… priced at a discount relative to similar capabilities… reduced time from ideation to national launch from nine months down to three months” .
  • On consumer backdrop and Taco Bell resilience: “We’ve had sales and trans growth across all income bands at Taco Bell… we welcome [the softer U.S. environment] because we’re taking share” .

Q&A Highlights

  • Profit cadence and confidence: Management reiterated 8% Core OP growth for FY25; stronger Q4 vs Q3 given G&A phasing and laps of prior bad debt ($30M) and refranchising gains in H2 (~$40M tailwind) .
  • Technology ROI: Strong correlation between digital mix and store-level sales/EBITDA; voice AI shows minimal intervention and lower turnover; Byte rollout expanding beyond U.S. .
  • Capital intensity: Strategy remains asset-light (~2% company ownership); selective acquisitions for capability and returns; tech investments shared with franchisees .
  • Beverages expansion: Live Más Café expansion and Refrescas support Taco Bell’s $5B beverage ambition; KFC testing “Quench” beverages .
  • Value playbooks: KFC U.S. “Comeback” value push; Pizza Hut leaning into compelling value and mobile app acquisition .

Estimates Context

  • Q2 2025 delivered slight misses to consensus: EPS ex‑SI $1.44 vs $1.46*, revenue $1,933M vs $1,938.6M*, EBITDA $692M* vs $700.2M*, as Pizza Hut’s timing items and higher G&A offset Taco Bell/KFC Int’l strength .
  • Near-term estimate revisions may reflect higher Q3 G&A and Pizza Hut timing, partly offset by H2 tailwinds (bad debt lap, refranchising gains) and reaffirmed FY targets; management flagged stronger Q4 vs Q3 profit growth .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Taco Bell remains the growth engine (SSS +4%, beverage and chicken platforms scaling), supporting on‑algorithm FY25 Core OP growth despite macro softness .
  • KFC International strength continues (SSS +3%; 566 gross openings), while U.S. is in active value and brand-relevance rebuild mode; watch for U.S. traction into H2 .
  • Pizza Hut’s underperformance is largely tied to identifiable timing and transition costs; value/app initiatives and easier laps set up better Q4 .
  • Digital/AI flywheel is a differentiator (57% mix, ByteConnect, voice AI); expect incremental operational and marketing leverage as deployments broaden .
  • FY25 setup: G&A at high end of prior range with Q3 heavy, Q4 stronger; FX tailwind raised to ~$20M; interest expense $500–$520M; thesis hinges on execution at Pizza Hut U.S. and KFC U.S. value perception repair .
  • Capital returns intact (dividend $0.71; buybacks YTD $336M) with net leverage at 3.8x and refinancing prep for 2026 maturity underway .
  • Stock narrative: modest print miss but credible reaffirmation of FY algorithm, plus AI/digital momentum and development resilience are the positive offsets; H2 execution will drive next leg.

Appendix: Additional Source Highlights

  • Press release CEO transition (June 17, 2025) .
  • Q2 press release duplicate (Business Wire) for confirmation .
  • Q1 benchmarks for trend analysis .
  • Q4 2024 context and 53rd week impact .