Yum! Brands (YUM +0.57%) is burning the pizza. The company is selling Pizza Hut in two transactions. First, Pizza Hut outside of mainland China will go to LongRange Capital, a private equity firm. Secondly, Pizza Hut in China will be sold to Yum China. All told, Yum! Brands will net about $2.3 billion from the sales.
Today’s Change
(0.57%) $0.86
Current Price
$151.60
Key Data Points
Market Cap
$42B
Day’s Range
$150.78 – $153.50
52wk Range
$137.33 – $169.39
Volume
39.5
Avg Vol
1.9M
Gross Margin
45.67%
Dividend Yield
1.93%
The $2.3 billion is an immediate win for the balance sheet. In theory, the plan to sell Pizza Hut and focus on growth opportunities within KFC and Taco Bell is a good one. Both KFC and Taco Bell have healthier unit economics and clearer paths to expanding their global footprint.
Image source: Getty Images.
Yet the entire plan hinges on consumer choices and discretionary spending. Americans’ wallets are tightening and leaning toward greater value and healthier choices. Yum!’s growth assumptions reflect a level of optimism and execution that may not fully be realized. U.S. consumer debt reached an all-time high this year at $18.8 trillion. Inflation and fuel prices ticking upward over a prolonged period do not bode well for fast-food or fast-casual restaurants, either.
The sale of Pizza Hut is smart and makes the company leaner and better positioned to reward shareholders. Yum! authorized a $4 billion share buyback. The stock has been largely muted year to date, up less than 1%. If macroeconomic conditions improve, I’ll be more bullish. Until then, investors should be cautiously optimistic.
Catie Hogan has no position in any of the stocks mentioned. The Motley Fool recommends Yum! Brands. The Motley Fool has a disclosure policy.