Yum’s Profit Pressured by Investment in Grubhub

I previously commented on the viability of Grubhub and now Grubhub's demise has dragged down the earnings of Yum.... Aivars Lode

Yum Brands Inc. marked down the value of its investment in Grubhub Inc., a move that hurt the restaurant chain’s third-quarter profit but doesn’t reflect the recent major selloff in shares of the delivery service. 

The owner of the KFC, Taco Bell and Pizza Hut restaurant chains on Wednesday said it recorded a $60 million pretax expense tied to its bet on the delivery service, a move that sliced off 15 cents from its earnings per share for the quarter. 

That markdown reflected Yum’s valuation of the investment as of the end of September, according to a spokeswoman. In February of last year, the company agreed to pay $200 million to take what was then a 3% stake in Grubhub to bolster its delivery business. The deal was completed in April. 

Grubhub shares plunged 43% on Tuesday after the Chicago-based company on Monday issued a downbeat forecast for sales and profits, warning about competition among delivery services and slowing growth in the sector. 

Shares of Yum fell 5% in premarket trading. 

Yum on Wednesday reported global same-store sales, or sales from locations open for at least a year, rose 3% in the quarter. 

Same-store sales increased 3% in the KFC business and 4% at Taco Bell, Yum said. Pizza Hut’s had flat same-store sales. System sales in the U.S. at Pizza Hut restaurants dropped 2% in the quarter. 

“There is always unfinished business,” Chief Executive Greg Creed told analysts. “This unfinished business is probably most pronounced at Pizza Hut U.S.”

Yum, based in Louisville, Ky., reported quarterly net income fell to $255 million, or 81 cents a share, from $454 million, or $1.40 a share, in the same quarter last year.

General and administrative expenses increased 2%, while costs covering franchise advertising and services jumped 13%.

Total revenue slipped 4% from the year earlier, to $1.34 billion, the company said, in line with expectations from analysts.

By Micah Maidenberg - WallStreet Journal