<\/p>\n
A food-safety scare is one of the fastest ways to shake a restaurant stock, and Yum! Brands (YUM) just lived through one.<\/p>\n
Its most important brand, Taco Bell, spent much of July tied to a widening cyclospora outbreak. Sales fell, foot traffic dropped, and the stock slid as investors braced for a long recovery.<\/p>\n
Then the company reported second-quarter results, and the mood changed.<\/p>\n
For anyone holding Yum! Brands stock, or thinking about buying the dip, the important question is whether the damage runs deep or clears quickly.\u00a0<\/p>\n
The earnings call gave the first real answer.<\/p>\n
How the cyclospora outbreak put pressure on Taco Bell sales<\/p>\n
The trouble started in mid-July, when federal health officials linked a cyclospora outbreak to shredded iceberg lettuce served at Taco Bell.<\/p>\n
Cyclospora is a waterborne parasite often carried on fresh produce, and it causes a gastrointestinal illness that can last for weeks.<\/p>\n
The response from diners was immediate. Daily traffic to Taco Bell locations fell over 18%byJuly 15 and dropped nearly 31%onJuly 17, Nation’s Restaurant News reported.<\/p>\n
That kind of drop matters more for Yum! than for most rivals, because Taco Bell is the company’s main growth driver and earns a large share of its U.S. profit.<\/p>\n
The Cyclospora outbreak that spooked Yum! Brands investors<\/p>\n
The outbreak was serious enough to justify the caution.<\/p>\n
The Centers for Disease Controland Prevention has tied at least 1,947 illnesses across nine states to people who ate at Taco Bell.<\/p>\n
There were at least 98 hospitalizations and no deaths, according to the CDC outbreak investigation.<\/p>\n
The U.S. Food and Drug Administration traced the contaminated lettuce to Taylor Farms de Mexico, which recalled the affected product.<\/p>\n
Taco Bell pulled the lettuce from its restaurants nationwide by July 17.<\/p>\n
Investors had seen this kind of scare before. In 2015, an E. coli outbreak at Chipotle Mexican Grill (CMG) hurt its sales and its stock for years.\u00a0<\/p>\n
That history shaped how investors first reacted to the Taco Bell news.<\/p>\n
Why Yum! Brands stock rose despite the Taco Bell hit<\/p>\n
Here is the part that surprised the market.<\/p>\n
Yum! Brands stock climbed more than 3% on July 30, the day the company reported earnings, even afterfalling about 5% to 8% since the outbreak first surfaced.<\/p>\n
The turnaround came down to two things: a strong quarter, and clear signals that the worst of the sales damage had already passed.<\/p>\n
Related: National beer and wine leader files Chapter 11 bankruptcy<\/p>\n
Yum! posted adjusted earnings of $1.62 per share for the second quarter, beating expectations of $1.58, CNBC reported.\u00a0<\/p>\n
Revenue rose 12% to $2.17 billion, just short of the $2.2 billion analysts expected.<\/p>\n
The second-quarter numbers covered the period till June 30, so they came in before the outbreak began.\u00a0<\/p>\n
That means the report captured a healthy Taco Bell heading into the crisis, not the July slump.<\/p>\n
A cyclospora outbreak hit Taco Bell sales hard in July, but a strong second quarter and early signs of recovery pushed Yum! Brands stock higher.<\/p>\n
Mario Tama / Getty Images<\/p>\n
What Yum! executives revealed about the Taco Bell recovery<\/p>\n
The bigger relief came from management’s comments on current sales.<\/p>\n
Chief Executive Chris Turner said the outbreak caused a meaningful short-term sales decline but described it as temporary.<\/p>\n
By July 27, Taco Bell’s U.S. sales at established locations had fallen 2% for the third quarter so far. That’s a sharp reversal from the second quarter, when sales grew 7%.<\/p>\n
Chief Financial Officer Ranjith Roy said the worst hit landed over the weekend of July 18, and trends improved from there.\u00a0<\/p>\n
More Restaurant Coverage:<\/p>\n
After closing 250 restaurants, pizza chain drops nostalgic offeringStarbucks CEO silently repeats Chipotle’s playbookMajor burger dining chain closes more locations<\/p>\n
He noted on the earnings call that recent sales had recovered about halfway back to prior-year levels.<\/p>\n
Management also gave investors a number to watch.\u00a0<\/p>\n
Third-quarter store-level margins at Taco Bell are expected to land between 19% and 21%, down from 26.2% in the second quarter, CNBC reported.<\/p>\n
The industry-wide problem that limited the damage to Taco Bell<\/p>\n
One detail helped Taco Bell’s case: it was not alone in the outbreak.<\/p>\n
Consumers came to see the outbreak as a farm-level supply problem rather than a Taco Bell kitchen problem, which softened the blow to the brand.<\/p>\n
Chipotle confirmed the point on its own earnings call, saying the outbreak cut about 2 percentage points from its sales in the second half of July, CNBC reported.<\/p>\n
When several lettuce-heavy chains feel the same pinch at once, the market reads it as a shared agricultural failure.\u00a0<\/p>\n
That framing matters, because a brand-specific safety scandal tends to linger far longer than an industry-wide one.<\/p>\n
How Taco Bell is trying to win customers back<\/p>\n
Taco Bell moved fast to bring diners back through value.<\/p>\n
The chain leaned on low-price promotions, including its Tuesday drops, which stayed popular through the outbreak, CNN reported.<\/p>\n
A few things need to hold for the recovery to stick:<\/p>\n
Traffic keeps climbing back toward pre-outbreak levels rather than stalling.Value promotions bring diners in without permanently shrinking the average order size.No new safety headlines emerge to reset consumer fear.<\/p>\n
Yum! is also reshaping its portfolio. The company agreed in June to sell Pizza Hutfor$2.7 billion, CNBC reported.\u00a0<\/p>\n
LongRange Capital is paying $1.5 billion for the international business outside mainland China, while Yum China is buying the mainland piece for $1.2 billion.<\/p>\n
That leaves KFC and Taco Bell as the core of the company.<\/p>\n
What Yum! Brands investors should watch next<\/p>\n
The full financial cost of the July drop will show up in the third-quarter report, not the second-quarter numbers investors just celebrated.<\/p>\n
Watch whether heavy discounting starts to eat into Taco Bell’s average numbers, since prolonged $1 promotions can pull down the very margins its management is trying to protect.<\/p>\n
Also keep an eye on regulations. Rising federal scrutiny of food-safety practices could raise compliance costs across the fast-food industry over time.<\/p>\n
The outbreak clearly hurt Taco Bell, but Yum! showed investors a strong underlying business and early proof that sales are climbing back.\u00a0<\/p>\n
That combination is why the stock rose on a week that started with bad news, though the third-quarter report will be the real test of how complete the recovery is.<\/p>\n
Related: 44-year-old mall retailer quietly closes 40 stores<\/p>\n
#Taco #Bell #outbreak #deals #blow #parent #company039s #finances<\/p>\n","protected":false},"excerpt":{"rendered":"
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