Yum Brands Inc reported quarterly earnings and same-store sales above Wall Street estimates on Wednesday, as KFC recorded its best growth in three years, but weaker-than-expected growth at Taco Bell weighed on the company`s shares.
Taco Bell recorded slowest growth in same-store sales in three quarters and missed analysts` expectations, as the restaurant chain competes for customers in a crowded fast-food market.
"They (offer) cheap, inexpensive food and the demand is still there. But it is not a big point of differentiation. You could go to a (convenience) store and get the same thing," said Tim Powell, a restaurant analyst at Chicago-based Q1 Consulting.
The Mexican-inspired chain has been a major growth driver for Yum Brands in the past two quarters, riding on the popularity of its value meals.
The restaurant chain has also expanded its delivery in the United States, making the most of Yum Brands` investments in GrubHub Inc.
But Taco Bell`s same-store sales rose 4 percent in the latest quarter, falling short of the 4.47 percent estimated by analysts, according to IBES estimates from Refinitiv.
Edward Jones analyst Brian Yarbrough said expectations for growth in Taco Bell were high going into the quarter and the slight miss in same-store sales could be pulling down Yum Brands shares.
Same-store sales at Pizza Hut also fell short of expectations in the face of intense competition from local pizzerias and chains like Domino`s Pizza Inc.
The highlight of the quarter was KFC, which reported a better-than-expected 5 percent rise in sales at established restaurants, boosted by growth in its international markets, including Indonesia and Japan.
Yum has been aggressively expanding its KFC restaurants, opening 372 new restaurants in 46 countries in the first quarter.
"KFC continues to drive taste as a key differentiator for the brand with a focus on elevating the role of the cook," Chief Financial Officer David Gibbs said.
Excluding one-time items, Yum earned 82 cents per share, 1 cent above the average estimate.
Yum`s net income fell about 40 percent to $262 million in the three months ended March 31, partly due to its investments in food delivery service GrubHub.
The company`s shares, which have gained about 14 percent this year, were down 3.3 percent on Wednesday.