Yum Brands sells bulk of Pizza Hut operations for $1.5 billion

Profit rose to $853 million, or $3.08 a share, from $374 million, or $1.33 a share, a year earlier. On an adjusted basis, earnings of $1.62 a share topped the $1.58 a share that analysts polled by FactSet expected. Total revenue climbed 12% to $2.17 billion, roughly in line with Wall Street estimates.

The cyclospora outbreak has affected Taco Bell demand in recent weeks. Yum Brands said U.S. same-store sales fell about 2% through July 27. Research firm Placer.ai, which analyzes foot traffic, estimated that visits to U.S. Taco Bell locations dropped as much as 31% about a week after the first suspected cyclospora cases were reported. Finance chief Ranjith Roy said the largest sales impact came over the weekend of July 18. “It is early days, but in the subsequent weeks, sales declines have moderated materially and we are seeing steady improvement in day-over-day sales trends,” he said.

Chief Executive Chris Turner told analysts that the safety of consumers is the company’s highest priority and that Yum Brands’ teams are working quickly and transparently in response to the outbreak. He said elevated uncertainty and public-health concerns initially affected consumer demand, but consumers have become increasingly aware that the cyclospora outbreak is an industry-wide issue, not something specific to Taco Bell. The company expects the impact to be temporary.

Cyclosporiasis is a food-borne illness characterized by explosive diarrhea that can last weeks. Federal health officials earlier this month linked Taylor Farms’ shredded iceberg lettuce, served at Taco Bell locations, to the outbreak, which has affected thousands of people across multiple states. Taylor Farms has voluntarily removed from the U.S. market all of its iceberg lettuce sourced from central Mexico.

The cyclospora outbreak has not derailed the company’s broader growth. Total worldwide system sales grew 5%, excluding foreign currency translation, in the second quarter while same-store sales climbed 3%. The Taco Bell division posted a 7% growth in same-store sales, and KFC reported a 2% increase.

The earnings report came after Yum Brands last month struck a $1.5 billion deal to sell the bulk of Pizza Hut’s global operations to private-equity firm LongRange Capital. In a separate deal, Yum China Holdings agreed to acquire Pizza Hut’s mainland China business for $1.2 billion. “These transactions will result in a stronger Yum and a stronger Pizza Hut, and we look forward to supporting a smooth transition,” Turner said. He added that “the ability of our teams to enter into two separate transactions simultaneously, while achieving strong performance in our other brands in the context of a turbulent macro environment, is a testament to the strength of Yum’s talent and culture.”

Yum Brands shares were trading 6.4% higher, at $161.70, in recent trading after the earnings report.