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Lockdown in China Leaves Yum! Brands With a Sour Taste

Investors were left with a bad taste in their mouth after the global fast-food chain Yum! Brands (YUM) reported Q1 2022 results, which fell short of Wall Street estimates. The poor performance has been attributed to the lockdown in China. However, YUM stock still gained more than 2.9% on May 4, after the earnings report. 

Yum operates a global network of restaurants under brands such as KFC, Pizza Hut, Taco Bell, and Habit Burger Grill.

Q1 Earnings at a Glance

Revenue jumped 4% year-over-year to $1.55 billion but fell short of the consensus estimate of $1.59 billion. Adjusted earnings per share (EPS) of $1.05 declined from $1.07 for the same quarter the previous year and missed the consensus estimate of $1.07.

Yum explained that pandemic-related lockdowns in China disrupted restaurant operations and depressed sales in the country. China is a major international market for Yum. The country is struggling with a COVID-19 resurgence.

Q2 Outlook

On the Yum earnings call, YUM CFO, Chris Turner, said that they expect the softness in China to persist for some time. The executive also said that the exclusion of Russia’s profit will have a weight on its results. The chain is redirecting profit from its operations in Russia to humanitarian aid in Ukraine. 

Wall Street’s Take

Following the Q1 report, Loop Capital analyst Alton Stump maintained a Hold rating on YUM stock but lowered the price target to $120 from $125. Stump’s new price target indicates 1.3% upside potential.

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating. That’s based on eight Buys versus five Holds. The average Yum! Brands price target of $139.31 implies 19.73% upside potential to current levels. Shares have declined about 13% year-to-date.

Stock Investors

TipRanks’ Stock Investors tool shows that investor sentiment is currently Very Positive on Yum Brands, with 9% of portfolios tracked by TipRanks increasing their exposure to YUM stock over the past 30 days.

Key Takeaway for Investors

If not for the challenges in China and Russia, then Yum’s Q1 results could have been better, because the business performed well in other markets. You cannot count on Russia because Yum is exiting the market, but there is a chance of a strong recovery in China once the COVID-19 situation in the country improves and the lockdowns are lifted. 

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