What Happened?
Shares of fast-food company Yum China (NYSE:YUMC) jumped 9.1% in the morning session after the company reported strong third-quarter earnings that significantly blew past analysts' sales and EBITDA estimates. Notably, the same-store sales growth improved on strong contributions from both the KFC and Pizza Hut brands as the company continued to optimize pricing while introducing new offerings and recipes. Another important contributor to the improved momentum was the delivery business, which grew 18% year on year, representing 40% of sales during the quarter, helping the business meet the demands of solo diners.
Lastly, YUMC continued to expand to underserved and lower-tier markets, adding 1,200 new stores in the first nine months of the year. Zooming out, we think this was a strong quarter, highlighting continued improvements in its key operating segments.
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What The Market Is Telling Us
Yum China’s shares are somewhat volatile and have had 10 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock gained 18.8% on the news that the company reported fourth-quarter results with revenue outperforming Wall Street's estimates, driven by better-than-expected same-store sales and a higher number of locations. Profitability was also solid, leading to an EPS beat.
Looking ahead, the company reiterated that from 2024 to 2026, system sales and profit are expected to grow at annual rates ranging from high single digits to double digits, leading to a double-digit compound annual growth rate for earnings per share.
Zooming out, this was a fantastic quarter that should have shareholders cheering.
Yum China is up 14.7% since the beginning of the year, and at $48.70 per share, it is trading close to its 52-week high of $51.01 from October 2024. Investors who bought $1,000 worth of Yum China’s shares 5 years ago would now be looking at an investment worth $1,160.
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