Yum China Holdings (YUMC) to Report Q2 Results: What to Expect

The market is expecting Yum China Holdings (YUMC) to post flat earnings compared to the year-ago quarter on higher revenue when it reports results for the quarter ended June 2024. This widely-known consensus forecast is important when assessing the company’s earnings picture, but a strong factor that could affect its stock price in the near term is how well actual results stack up against those estimates.

The stock could rise if these key numbers beat expectations in the upcoming earnings report. On the other hand, if they don’t, the stock could fall.

While management’s discussion of operating conditions during the earnings conference call will have the greatest impact on the durability of the immediate price change and future earnings expectations, it is worth having insight into the likelihood of an upside earnings per share surprise.

Zacks Consensus Estimate

The Chinese restaurant operator is expected to report quarterly earnings of $0.47 per share in its upcoming report, unchanged from the same quarter last year.

Revenue is expected to be $2.77 billion, up 4.4% from the same quarter last year.

Estimate revision trend

The consensus EPS estimate for the quarter remained unchanged over the past 30 days. This is essentially a reflection of how the analysts covering the aggregate have reassessed their initial estimates during that period.

Investors should note that the direction of each analyst’s estimate revisions may not always be reflected in the aggregate changes.

Whispers about earnings

Estimate revisions ahead of a company’s earnings release provide a guide to business conditions in the period in which the earnings are released. Our proprietary surprise prediction model, the Zacks Earnings ESP (Expected Surprise Prediction), has this insight at its core.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS. The idea is that the analysts revising their estimates just before an earnings release have the latest information, which could potentially be more accurate than what they and other contributors to the consensus had previously predicted.

So a positive or negative Earnings ESP reading theoretically indicates a likely deviation of actual earnings from consensus estimates. However, the model’s predictive power is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). Our research shows that stocks with this combination deliver a positive surprise almost 70% of the time, and a solid Zacks Rank actually boosts the predictive power of Earnings ESP.

It’s important to remember that a negative Earnings ESP reading does not indicate an earnings miss. Our research shows that it’s difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank 4 (Sell) or 5 (Strong Sell).

How are Yum China’s numbers shaping up?

In the case of Yum China, the Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting that analysts have recently become bearish on the company’s earnings prospects. This has led to an Earnings ESP of -2.13%.

On the other hand, the company’s stock currently has a Zacks Rank #4.

The combination of these factors makes it difficult to clearly predict that Yum China will beat consensus earnings per share estimates.

Can history give any clues about financial performance?

When calculating a company’s future earnings estimates, analysts often consider how well it matched previous consensus estimates. So it’s worth looking at a surprising story to assess its impact on the upcoming numbers.

In the last reported quarter, it was expected that Yum China would post earnings of $0.66 per share when the actual figure was $0.71, representing a surprise of +7.58%.

The company has topped consensus earnings per share estimates three times over the last four quarters.

Summary

Beating or missing earnings may not be the only reason a stock goes up or down. Many stocks lose ground despite beating earnings because of other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite missing earnings.

That said, betting on stocks that are expected to beat earnings expectations increases the odds of success. That’s why it’s worth checking a company’s Earnings ESP and Zacks Rank ahead of its quarterly earnings release. Be sure to use our Earnings ESP Filter to discover the best stocks to buy or sell before they release.

Yum China doesn’t seem like a compelling candidate to beat earnings. However, investors should look at other factors when betting on this stock or staying away from it ahead of the earnings release.

Expected results of an industry player

Texas Roadhouse (TXRH), another stock in the Zacks Retail – Restaurants industry, is expected to post earnings of $1.65 per share for the quarter ended June 2024. This estimate indicates a year-over-year change of +35.3%. Revenue for the quarter is expected to reach $1.34 billion, up 14.4% from the year-ago quarter.

The consensus EPS estimate for Texas Roadhouse has been revised 0.5% higher over the past 30 days to current levels. However, the higher Most Accurate Estimate results in an Earnings ESP of 3.90%.

This Earnings ESP, combined with a Zacks Rank #2 (Buy), suggests that Texas Roadhouse is likely to beat consensus EPS estimates. The company has surpassed consensus EPS estimates three times over the last four quarters.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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