It has been about a month since the last earnings report for Yum China Holdings (YUMC Quick QuoteYUMC - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Yum China due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Yum China Q2 Earnings Top, Revenues Lag, Rise Y/Y

Yum China reported mixed second-quarter 2024 results, with adjusted earnings beating the Zacks Consensus Estimate while total revenues missed the same. That said, the bottom and top lines increased on a year-over-year basis.

The quarter’s performance was driven by robust total system sales growth primarily attributable to net new unit contributions. The company’s focus on value-for-money and innovative new products, automation and AI accompanied by favorable pricing and lower delivery fees boded well. The initiatives undertaken to improve operational efficiency and stabilize restaurant margin are encouraging for YUMC’s growth prospects in 2024 and beyond.

Earnings & Revenue Discussion

Yum China reported adjusted earnings per share of 55 cents, which beat the Zacks Consensus Estimate of 47 cents by 17%. The bottom line moved up 17% from a year ago.

Total revenues of $2.68 billion missed the consensus mark of $2.77 billion by 3.3%. On the other hand, the top line inched up 1% on a year-over-year basis. Excluding foreign currency translation, revenues increased 4% year over year.

Total system sales (excluding foreign currency translation) increased 4% year over year. The upside was attributable to the net new unit contribution of 8%. System sales at KFC and Pizza Hut increased 5% and 1% (excluding foreign currency translation) year over year, respectively.

During the quarter, YUMC's same-store sales reached 96% of the previous year's level. Same-store transactions grew 4% on a year-over-year basis.

Operating Highlights

Total costs and expenses amounted to $2.413 billion compared with $2.397 billion reported in the prior-year quarter.

The restaurant margin was 15.5% compared with 16.1% a year ago.

Adjusted operating profit totaled $266 million compared with $259 million a year ago. Adjusted net income amounted to $212 million compared with $199 million in the prior-year quarter.

Balance Sheet

As of Jun 30, 2024, Yum China’s cash and cash equivalents were $1.043 billion compared with $1.128 billion as of Dec 31, 2023. Net inventories were $362 million compared with $424 million as of Dec 31, 2023.

In the second quarter, the company repurchased 5.1 million shares for $187 million. As of Jun 30, the company had $666 million available for future share repurchases under the current authorization program.

Management declared a quarterly cash dividend of 16 cents per common share. The dividend will be payable on Sep 17 to shareholders of record as of the close of business on Aug 27, 2024.

Unit Development and Other Updates

In the second quarter, Yum China opened 401 net new stores. As of Jun 30, the total restaurant count reached 15,423, including 10,931 KFC stores and 3,504 Pizza Hut stores.

Yum China’s delivery contributed approximately 38% to KFC and Pizza Hut's company sales.

Digital orders contributed about 90% to the total company sales, with 89% to KFC sales and 93% to Pizza Hut sales. Loyalty programs of KFC and Pizza Hut led to year-over-year growth by increasing to more than 495 million members.

2024 Outlook Retained

Yum China still projects net new store openings to be in the range of 1,500-,1700. Management continues to project capital expenditures to be between $700 million and $850 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Yum China has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Yum China has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Yum China is part of the Zacks Retail - Restaurants industry. Over the past month, McDonald's (MCD Quick QuoteMCD - Free Report) , a stock from the same industry, has gained 5.7%. The company reported its results for the quarter ended June 2024 more than a month ago.

McDonald's reported revenues of $6.49 billion in the last reported quarter, representing a year-over-year change of -0.1%. EPS of $2.97 for the same period compares with $3.17 a year ago.

For the current quarter, McDonald's is expected to post earnings of $3.15 per share, indicating a change of -1.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.

McDonald's has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.