Yum Brands mulls Pizza Hut sale as Taco Bell drives third-quarter beat

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By Juveria Tabassum

(Reuters) -Yum Brands said on Tuesday it was exploring strategic options for its Pizza Hut chain struggling in a highly competitive fast-food industry, and posted upbeat quarterly results on the back of demand at its Taco Bell U.S. stores.

Pizza Hut’s sales have lagged Yum Brands’ other prominent units, Taco Bell and KFC International, falling for seven consecutive quarters. In comparison, Taco Bell last reported negative comparable sales in June 2020.

“Pizza Hut’s performance indicates the need to take additional action to help the brand realize its full value, which may be better executed outside of Yum Brands,” the company’s new CEO, Chris Turner, said in a statement.

Several quarters of price hikes at restaurants, sticky inflation and economic uncertainty have forced consumers to become more wary about dining out as they look to stretch their budgets. Still, pizzas are viewed as a value-option to feed families.

Industry giant Domino’s Pizza said in October that consumers were seeking out its pizzas, helped by promotions and new menu items, as well as its delivery partnerships with third-party aggregators such as Doordash and UberEats.

While Pizza Hut has also offered value deals such as various personal pizzas for $5 and $2, “an insufficient value message amid a competitive value landscape resulted in transaction softness,” company veteran and former CEO David Gibbs said in August.

TACO BELL HOLDS THE FORT

Yum Brands’ shares were up about 5% in early trading on Friday, and its results came at a time when several restaurant chains have said that foot traffic has slowed heading into the back half of the year.

Still, Taco Bell’s Tex-Mex cuisine and its more affordable prices have held the company in good stead against the slowdown in dining out.

There are about 19,872 Pizza Hut restaurants worldwide, and the chain accounts for about 11% of Yum Brands’ annual operating profits, compared with about for 36% for Taco Bell’s U.S. business.

“Encouraged by the move to find strategic alternatives for Pizza Hut,” TD Cowen analyst Andrew Charles said, adding that the move will leave behind a faster developing company “anchored to healthier Taco Bell U.S. & KFC International stories.”

Yum Brands’ worldwide same-store sales grew 3% during the quarter ended September 30, edging past estimates of a 2.68% increase, according to data compiled by LSEG.

Adjusted profit per share of $1.58 beat estimates of $1.49.

Packaged food giant PepsiCo acquired Pizza Hut in 1977, but spun off the chain along with KFC and Taco Bell in 1997 to create a restaurants company, which took on the name Yum Brands in 2002.

A deadline to complete Pizza Hut’s strategic review has not been set, and there was no assurance that the process would result in a transaction, Yum Brands said on Friday.

(Reporting by Juveria Tabassum and Koyena Das in Bengaluru; Editing by Maju Samuel)