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Likely Coronavirus Impact on Yum China's (YUMC) Q1 Earnings

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Yum China Holdings Inc. (YUMC - Free Report) is scheduled to report first-quarter 2020 results on Apr 28. In the last-reported quarter, the company delivered a positive earnings surprise of 66.7%. Further, it has a trailing four-quarter beat of 24.7%, on average.

How Are Estimates Placed?

The Zacks Consensus Estimate for first-quarter bottom line is pegged at a loss of 25 cents, indicating a decline from earnings of 59 cents recorded in the year-ago quarter. For quarterly revenues, the consensus mark is pegged at $1,145 million, suggesting a decline of 50.3% from the year-earlier figure.

Let's take a look at how things have shaped up in the quarter.

Yum China Holdings Inc. Price and EPS Surprise

 

Factors at Play

The coronavirus pandemic is expected to have materially affected Yum China's financial performance in first-quarter 2020. Although most of the stores in China have re-opened after the coronavirus-led shutdown, traffic is considerably lower than the pre-outbreak levels. Moreover, same-store sales are expected to decline in the range of mid-to-high-single digits for first-quarter 2020.

To contain the spread of the deadly virus, the company has closed its dine-in services and is operating only through pick-up and delivery. Although online delivery is likely to have seen strong growth, it may not be able to offset the negative impact of store closures in the first quarter.

Moreover, the company has been increasingly focusing on delivery channels, which again is expected to have hurt margins in the first quarter. Also, costs related to transactions and franchises are expected to have shot up.

Nonetheless, continuous focus on menu innovation, digital enhancement and strong brand recognition are likely to have boosted the top line in the to-be-reported quarter.

What Our Model Says

Our proven model predicts an earnings beat for Yum China this time around. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. 

Earnings ESP: Yum China has an Earnings ESP of +18.37%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are some stocks from the Zacks Retail - Restaurants space that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

Papa John's International, Inc. (PZZA - Free Report) has a Zacks Rank #3 and an Earnings ESP of +15.44%.

The Wendy's Company (WEN - Free Report) has a Zacks Rank #3 and an Earnings ESP of +0.07%.

Wingstop Inc. (WING - Free Report) has an Earnings ESP of +2.15% and a Zacks Rank #3.

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