Yum! Inc. (NYSE:YUM) is set to report FQ1 2014 earnings after the market closes on Tuesday, April 22nd. Yum! Brands is the parent company of the Taco Bell, KFC, Pizza Hut, and WingStreet restaurant chains. The biggest news of the quarter from Yum! came when they announced they would be offering breakfast at Taco Bell featuring the AM CrunchWrap and Waffle Taco. Yum! is attempting to challenge McDonald's (NYSE:MCD) 30% market share on breakfast as well as the big coffee chains, Dunkin' Donuts (NASDAQ:DNKN) and Starbucks (NASDAQ:SBUX), who both enjoy significant morning food sales. This quarter Wall Street is expecting EPS growth of 14c per share and an increase in revenue of 11.8% compared to FQ1 of last year. Here's what investors expect from Yum! on Tuesday.
The current Wall Street consensus expectation is for Yum! to report 84c EPS and $2.834B revenue, while the current Estimize.com consensus from 18 Buy Side and Independent contributing analysts is 84c EPS and $2.843B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Yum! to report in-line with the Wall Street consensus on EPS but beat revenue expectations by a small margin.
Over the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting EPS and revenue 5 and 3 times respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential between the two groups' revenue expectations.(click to enlarge)
The distribution of estimates published by analysts on the Estimize.com platform range from 78c to 89c EPS and from $2.695B to $3.001B in revenues. This quarter we're seeing a moderate distribution of estimates on YUM.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings. (click to enlarge)
Over the past 4 months the Wall Street and Estimize forecasts have been moving in opposite directions, which is unusual. The Wall Street EPS forecast dropped from 87c to 84c while the Estimize consensus converged from 83c at the beginning of the period to 84c. Meanwhile, the Wall Street revenue consensus fell from $2.873B to $2.834B while the Estimize consensus increased from $2.805B to $2.843B. Timeliness is correlated with accuracy and the direction of analyst revisions is often a leading indicator.(click to enlarge)
The analyst with the highest estimate confidence rating this quarter is BradHewitt91, who projects 87c EPS and $2.830B in revenue. BradHewitt91 is ranked 13th overall among over 4,150 contributing analysts. Over the past year, BradHewitt91 has been more accurate than Wall Street in forecasting EPS and revenue 52% and 50% of the time respectively throughout 702 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, BradHewitt91 is expecting Yum! to report significantly higher EPS but slightly lower revenue than either Wall Street or the Estimize community predict.
This quarter Yum! attacked McDonald's hold on the breakfast market with ads mocking Ronald McDonald. On Tuesday the first battle of breakfast will take place and we will see who is winning the breakfast war. Analysts expect both top line and bottom line growth from Yum! Brands while McDonald's is predicted to report slightly higher revenue than last year but lower earnings. McDonald's is forecast to report year over year revenue growth of only 2% while Yum! brands sales are predicted to expand much more rapidly and growth by 12% compared to FQ1 of last year accroding to forecasts from the Estimize.com community.