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Nov. 1, 2019, 12:56 p.m. EDT

Yum Brands executives didn’t discuss Pizza Hut’s Cheez-It pizza on the call and analysts wonder why

A number of analysts called Pizza Hut’s U.S. business ‘challenged’

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By Tonya Garcia, MarketWatch


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Pizza Hut is “challenged” in the U.S., according to a number of analysts

Yum Brands Inc.’s Pizza Hut chain launched the Stuffed Cheez-It Pizza on September 17, but analysts note that executives made no mention of the item on the third-quarter earnings call.

“We were surprised no update was given on the company’s Cheez-it pizza, given the level of advertising around the product and its presence on the value platform,” analysts said.

Stifel rates Yum Brands stock hold with a $105 price target, down from $110.

Pizza Hut is undergoing a business transformation that includes an announcement in August that it would close about 500 locations in order to shift to a fast-casual delivery setup.

In the most recent quarter, Pizza Hut saw sales fall 2% in the U.S. , with same-store sales declining 3%.

The weak showing drove Yum  shares down nearly 6% in Wednesday trading. The stock was down 1.6% on Thursday.

“Coming off a solid second quarter, the Pizza Hut U.S. business decelerated in Q3, as changes to our value offerings helped franchisee margins, but had a negative impact on transactions,” said David Gibbs, chief financial officer, on the earnings call, according to a FactSet transcript.

Gibbs will move into the chief executive position effective Jan. 1, 2020.

Read: Grubhub says customers ar spreading their business among competitors, stock tanks 43%

“In addition, our previously announced plans to accelerate the transition to a modern delivery asset base in the U.S., while restructuring and upgrading our franchisee base, also took a toll on performance,” he said. “We caution we could see a continuation of soft sales and unit contraction throughout 2020 in Pizza Hut U.S. business.”

Globally, Pizza Hut same-store sales were flat. Yum Brands /zigman2/quotes/209029767/composite YUM +0.26%   other two chains, KFC and Taco Bell, experienced same-store sales growth of 3% and 4% respectively.

“The launch of a ‘Cheez-It’ style pizza is not a way to build an enduring brand, especially when being shelled by the day-in/day-out $5.99/$7.99 of the now larger Domino’s business,” analysts said. “As Domino’s U.S. business is $7 billion versus Pizza Hut’s at $6 billion, we view Pizza Hut’s loss as Domino’s gain and continue to prefer shares of Domino’s Pizza.”

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JP Morgan rates Domino’s Pizza Inc. /zigman2/quotes/201587798/composite DPZ -0.39%   overweight and Yum Brands neutral. Analysts lowered the price target on Yum Brands to $109 from $116.

Another example of that competition is Papa John’s International Inc. /zigman2/quotes/207343722/composite PZZA -2.68%   , which has seen its stock rally more than 47% in 2019 after declines and controversy stemming from the exit of the company’s founder John Schnatter following the use of a racial slur.

BTIG raised its price target on Papa John’s stock to $62 from $54 in a note published Tuesday. Analysts rate Papa John’s stock buy, noting the likelihood that the company will ramp up national advertising and capitalize on the popularity of chicken wings.

“We have seen both KFC and Pizza Hut begin promoting wings more aggressively in recent weeks to capture some of the sales growth being generated by the likes of Wingstop,” BTIG wrote.

The disruption caused by the revitalization plans means that Pizza Hut’s results in the U.S. will likely be “choppy” into the future, said KeyBanc Capital Markets.

See: Beyond Meat’s McDonald’s trial hasn’t been a ‘blowout,’ Bernstein analysts say

“Given the disruption, we believe Pizza Hut U.S. trends could remain volatile in an already challenged category that faces increased competition from large pizza players and non-pizza participation third-party aggregation,” wrote analysts led by Eric Gonazalez.

KeyBanc rates Yum stock sector weight.

Yum Brands shares are up 10% for the year to date while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.11%   is up 22% for the period.

/zigman2/quotes/209029767/composite
US : U.S.: NYSE
$ 99.24
+0.26 +0.26%
Volume: 1.78M
Dec. 10, 2019 6:30p
P/E Ratio
27.53
Dividend Yield
1.69%
Market Cap
$30.02 billion
Rev. per Employee
$167,294
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/zigman2/quotes/201587798/composite
US : U.S.: NYSE
$ 285.24
-1.13 -0.39%
Volume: 1.14M
Dec. 10, 2019 6:30p
P/E Ratio
31.49
Dividend Yield
0.91%
Market Cap
$11.67 billion
Rev. per Employee
$236,749
loading...
/zigman2/quotes/207343722/composite
US : U.S.: Nasdaq
$ 59.53
-1.64 -2.68%
Volume: 452,648
Dec. 10, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
1.51%
Market Cap
$1.90 billion
Rev. per Employee
$87,407
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,132.52
-3.44 -0.11%
Volume: 1.66B
Dec. 10, 2019 5:12p
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Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

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