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YB

YUM BRANDS INC (YUM)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered modest top-line and EPS beats: revenue $1.979B vs consensus $1.970B*, EPS ex-special $1.58 vs $1.48*, EBITDA $731M vs $712M*; strength was led by Taco Bell (+7% SSS) and KFC (+6% system sales ex-FX) while Pizza Hut remained the laggard .
  • Worldwide system sales grew 5% ex-FX and digital mix reached a record ~60% on $10B digital sales; unit growth remained elevated with 1,131 gross openings, led by 760 at KFC .
  • Management initiated a formal strategic review of Pizza Hut (retained Goldman Sachs and Barclays), a potential portfolio catalyst; Q4 could see transitory impacts from franchise actions tied to the review .
  • FY 2025 guidance tone: Taco Bell U.S. restaurant margins expected ~24%; interest expense guided to $505–$515M; ex-special G&A mid-single-digit growth; full-year performance may land slightly below the 8% core OP algorithm given Pizza Hut actions .

What Went Well and What Went Wrong

  • What Went Well

    • Taco Bell U.S. momentum: same-store sales +7%, digital mix records, and company-owned margins up 50 bps to 23.9% YoY; management highlighted craveable innovation, value, and easy experiences as drivers .
    • KFC international breadth and development: +6% system sales ex-FX, +6% unit growth, 760 gross openings; notable performance in U.K. (+9% SSS) and white-space expansion initiatives .
    • Technology leverage: Byte platform and AI tools (Byte Coach, Byte Commerce, Byte Connect) scaled further; +$10B digital sales and ~60% mix underpinned throughput and engagement .

  • What Went Wrong

    • Pizza Hut softness: operating profit down 8% YoY; U.S. system sales ex-FX -7% and SSS -6%; margin compression to 35.1% from 38.3% .
    • Elevated tax special items impacted GAAP EPS/ETR: special items tax expense of $28M and GAAP tax rate at 26.7% (effective tax ex-special 20.8%) .
    • Sequential margin headwinds in Pizza Hut company-operated restaurants persisted (company restaurant margin -12.2%); closures in certain markets offset gross builds through Q3 .

Financial Results

Consolidated snapshot vs prior year and prior quarter:

MetricQ3 2024Q2 2025Q3 2025
Total Revenues ($USD Billions)$1.826 $1.933 $1.979
GAAP Operating Profit ($USD Millions)$619 $622 $666
Core Operating Profit ($USD Millions)$630 $646 $677
GAAP Diluted EPS ($USD)$1.35 $1.33 $1.41
Diluted EPS ex Special ($USD)$1.37 $1.44 $1.58
Effective Tax Rate ex Special (%)23.9% 23.2% 20.8%

Actual vs Wall Street consensus (Q3 2025):

MetricConsensusActualResult
Revenue ($USD Billions)$1.970*$1.979 Bold beat
EPS ex Special ($USD)$1.48*$1.58 Bold beat
EBITDA ($USD Millions)$712.4*$731 Beat
# of Estimates (EPS/Revenue)28 / 22*——

Values retrieved from S&P Global.*

Segment performance (Q3 YoY):

MetricKFC Q3 2024KFC Q3 2025Taco Bell Q3 2024Taco Bell Q3 2025Pizza Hut Q3 2024Pizza Hut Q3 2025
Restaurants (#)31,143 32,951 8,594 8,816 19,927 19,872
System Sales ($MM)8,669 9,340 4,008 4,368 3,184 3,177
SSS Growth (%)-4% +3% +4% +7% -4% -1%
Operating Profit ($MM)339 392 251 267 91 84
Operating Margin (%)43.1% 44.6% 37.6% 36.6% 38.3% 35.1%

KPIs and trends (prior two quarters vs current):

KPIQ1 2025Q2 2025Q3 2025
Worldwide System Sales Growth ex-FX (%)+5% +4% +5%
Worldwide Same-Store Sales (%)+3% +2% +3%
Digital Sales Mix (%)~55% ~57% ~60%
Digital System Sales ($USD Billions)—>$9 $10
Gross New Units (count)751 871 1,131

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core Operating Profit growth (ex-FX, ex-53rd week)FY 2025~8% (algorithm) May land slightly below algorithm (Pizza Hut actions) Lowered tone
Taco Bell U.S. restaurant-level marginFY 202524–25% ~24% U.S.; global reported slightly below U.S. Narrowed to lower end
Interest expense (net)FY 2025$500–$520M $505–$515M Refined range
Ex-special G&A growthFY 2025 / Q4Mid-single-digit FY; Q3 double-digit lap; Q4 low end of guide Mid-single-digit FY; Q4 mid-single-digit Maintained/slightly updated phasing
FX impact on reported OPQ4 2025—~$15M tailwind New
Pizza Hut strategic review costsFY 2025—Recorded as special items; Q4 results may be impacted New special items

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/Technology (Byte platform)Launched Byte; NVIDIA partnership; expanding Byte Commerce/Coach; ~55–57% digital mix Byte Connect expanded; Byte Coach to +28k restaurants; developers adopting AI; ~60% digital mix, $10B digital sales Accelerating deployment and measurable impact
Taco Bell strategyRING plan to $3M AUV by 2030; beverages (Live Más Café), crispy chicken; Q1 +9% SSS; Q2 +4% SSS U.S. SSS +7%; record digital; margin ~24% FY; expanding crispy chicken/fries/beverages cadence; acquisition of 128 stores Sustained share gains and unit expansion
KFC turnaround (U.S.) and international developmentQ1: value resets; Saucy test; robust international builds; Q2: +5% system sales; U.S. challenges +6% system sales ex-FX; 760 builds; U.K. +9% SSS; early U.S. momentum (Saucy expansion) Broad-based growth; U.S. green shoots
Pizza Hut performance and actionsQ1–Q2: U.S. softness; transitions to new franchisees; tech timing pressures Strategic options review; Q4 may see isolated impacts; division OP -8% YoY Active portfolio optimization
Macro/tariffs/supply chainMinimal tariff exposure due to local sourcing; resilient model Beef inflation still a headwind; declining prices into Q4; FX tailwind Mixed: input pressure but easing

Management Commentary

  • “My three priorities for driving growth will be staying relevant with the next generation of consumers, leveraging our global scale to strengthen franchisees’ store-level economics, and expanding Byte across more restaurants worldwide.” — Chris Turner, CEO .
  • “We have commenced the process to explore strategic options for the Pizza Hut brand... which may be better executed outside of Yum! Brands.” — Chris Turner .
  • “Digital sales are growing quickly… Yum reaching $10 billion in digital sales and a digital mix of approximately 60%.” — Ranjith Roy, CFO .
  • “At Taco Bell U.S., despite the impact of beef inflation, we expect our full-year restaurant-level margins to fall within our guidance at 24%…” — Ranjith Roy .

Q&A Highlights

  • Taco Bell momentum into 2026: management expects continued layers (crispy chicken, fries, beverages, value menu) to sustain share gains and progress toward $3M AUVs by 2030 .
  • KFC focus: leveraging Taco Bell learnings for relevance; U.K. and Korea highlighted; U.S. strategy led by new president aiming to solidify turnaround; Saucy pilot expansion .
  • Byte economics: offering franchisees lower-cost, restaurant-built tech (e.g., Byte Connect) versus third-party solutions; not subsidized, priced to cover costs and drive franchisee P&L .
  • Portfolio: Pizza Hut review catalyst; company remains asset-light, with targeted equity acquisitions to unlock development (128 Taco Bell stores) .
  • G&A discipline: aim to keep mid-single-digit growth while investing; maintain ~4x net leverage; refined interest expense range .

Estimates Context

  • Q3 2025 results were above consensus on revenue, EPS ex-special, and EBITDA: $1.979B vs $1.970B*, $1.58 vs $1.48*, $731M vs $712M*; reflects stronger-than-expected Taco Bell comps and KFC profitability. Values retrieved from S&P Global.* .
  • Q4 2025 consensus sits at revenue ~$2.448B*, EPS ~$1.758*, EBITDA $833M*; management flagged potential Pizza Hut-related impacts and an FX tailwind ($15M) . Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Taco Bell remains the primary growth engine with durable SSS, margin resilience (~24% FY), and expanding category entry points; maintain overweight exposure to this brand’s narrative within YUM .
  • KFC’s international development (+760 builds) and improving company restaurant margins (+120 bps YoY) support sustained OP growth; watch U.S. momentum and Saucy pilot scaling .
  • Pizza Hut strategic review creates a potential re-rating catalyst; near-term reported results may be choppy given franchise actions, but longer-term portfolio focus could accelerate YUM’s growth algorithm .
  • Digital and AI flywheel (Byte) is increasingly tangible (60% mix, $10B sales), enhancing throughput, loyalty, and franchisee economics—an underappreciated multiple driver .
  • Expect modest estimate revisions upward for Q4/FY on EPS/EBITDA given Q3 beats, tempered by Pizza Hut caution and guided interest expense range; FX tailwind provides incremental cushion .
  • Balance sheet flexibility preserved (~4x leverage target, $1.5B securitization refinanced at sub-5% coupon) supporting buybacks ($372M YTD) and targeted U.S. equity investments (128 TB stores) .
  • Near-term trading: stock likely reacts to Pizza Hut review headlines and Taco Bell cadence; medium-term thesis hinges on twin growth engines plus digital scale and potential portfolio simplification .