Yum! Brands (YUM)

Fast-food company Yum! Brands (NYSE:YUM) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 8.4% year on year to $1.98 billion. Its non-GAAP profit of $1.58 per share was 6.7% above analysts’ consensus estimates.

Company Overview

Spun off as an independent company from PepsiCo, Yum! Brands (NYSE:YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Yum! Brands’ competitors include include Burger King and Popeyes (owned by Restaurant Brands, NYSE:QSR), Domino’s (NYSE:DPZ), McDonald’s (NYSE:MCD), and Wendy’s (NASDAQ:WEN).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $8.06 billion in revenue over the past 12 months, Yum! Brands is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost. However, its scale is a double-edged sword because there is only so much real estate to build restaurants, placing a ceiling on its growth. To accelerate system-wide sales, Yum! Brands likely needs to optimize its pricing or lean into new chains and international expansion.

As you can see below, Yum! Brands’s 6.7% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre.

This quarter, Yum! Brands’s revenue grew by 8.4% year on year to $1.98 billion, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months, similar to its six-year rate. This projection is underwhelming and implies its newer menu offerings will not accelerate its top-line performance yet. At least the company is tracking well in other measures of financial health.

Number of Restaurants

A restaurant chain’s total number of dining locations often determines how much revenue it can generate.

Yum! Brands sported 61,639 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 4.5% annual growth, among the fastest in the restaurant sector. Furthermore, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while Yum! Brands provides support.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth at restaurants open for at least a year.

Yum! Brands’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat. Yum! Brands should consider improving its foot traffic and efficiency before expanding its restaurant base.

In the latest quarter, Yum! Brands’s same-store sales rose 3% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

Yum! Brands has best-in-class unit economics for a restaurant company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 47.3% gross margin over the last two years. Said differently, roughly $47.30 was left to spend on selling, marketing, and general administrative overhead for every $100 in revenue.

In Q3, Yum! Brands produced a 47% gross profit margin, in line with the same quarter last year. Zooming out, Yum! Brands’s full-year margin has been trending down over the past 12 months, decreasing by 2.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as ingredients and transportation expenses).

Yum! Brands has been a well-oiled machine over the last two years. It demonstrated elite profitability for a restaurant business, boasting an average operating margin of 31.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Yum! Brands’s operating margin decreased by 1.7 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Yum! Brands generated an operating margin profit margin of 33.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Yum! Brands’s EPS grew at a decent 12.3% compounded annual growth rate over the last six years, higher than its 6.7% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, Yum! Brands reported adjusted EPS of $1.58, up from $1.37 in the same quarter last year. This print beat analysts’ estimates by 6.7%. Over the next 12 months, Wall Street expects Yum! Brands’s full-year EPS of $5.93 to grow 8.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Yum! Brands has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 19.2% over the last two years.

Yum! Brands’s free cash flow clocked in at $449 million in Q3, equivalent to a 22.7% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Yum! Brands’s five-year average ROIC was 71.6%, placing it among the best restaurant companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Yum! Brands reported $1.05 billion of cash and $11.55 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.88 billion of EBITDA over the last 12 months, we view Yum! Brands’s 3.7× net-debt-to-EBITDA ratio as safe. We also see its $249 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We liked how Yum! Brands beat analysts’ EPS expectations this quarter. We were also happy its same-store sales rose and were in line with Wall Street’s estimates. On the other hand, its revenue slightly missed. The company announced that it will explore strategic options for Pizza Hut, and options include outright divestiture, selling a stake in the chain or a joint venture. Overall, this print had some key positives. The stock traded up 2.3% to $142.50 immediately following the results.

Updated: December 4, 2025 at 9:43 PM EST

Before deciding whether to buy Yum! Brands or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We think Yum! Brands is a solid business. Although its revenue growth was mediocre over the last six years, its growth over the next 12 months is expected to be higher. And while Yum! Brands’s projected EPS for the next year is lacking, its new restaurant openings have increased its brand equity. On top of that, its impressive operating margins show it has a highly efficient business model.

Yum! Brands’s P/E ratio based on the next 12 months is 23.1x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $165.56 on the company (compared to the current share price of $145.89).