Yum Brands shares jump as $1 nacho fries draw diners to Taco Bell

Yum Brands delivered better-than-expected earnings Wednesday as new menu items, including $1 nacho fries and pickle fried chicken, drew more customers to its Taco Bell and KFC restaurants during the third quarter.

The company, which also owns Pizza Hut, said its net income rose 8.6 percent to $454 million, or $1.40 per share, in the three months ended Sept. 30, up from $418 million, or $1.18 per share, in the same period last year.

Excluding one-time items, Yum earned $1.04 per share, exceeding analysts’ expectations of 83 cents, according to Refinitiv.

Revenue in the quarter fell 3 percent to $1.39 billion but still beat the $1.38 billion that had been forecast.

Shares of the company rose nearly 5 percent Wednesday.

Sales at KFC and Taco Bell were fueled by new menu items, strong performances in international markets and a delivery deal with Grubhub that more than made up for continued weakness at Pizza Hut.

Delivery will be available at 2,000 KFC locations in the U.S. and 4,000 Taco Bells by the end of the year, Yum Brands CEO Greg Creed said on CNBC’s “Squawk on the Street” on Wednesday. Delivery customers are important since they tend to order more than people who visit the restaurants, which “bodes well” for sales growth at KFC and Taco Bell, he said.

The company said better value offers and digital orders in Russia, Thailand, the Middle East and India helped boost KFC’s same-store sales, which rose 3 percent in the quarter. Wall Street had expected growth of 2.1 percent. The company said some of its new menu items, which included pickle fried chicken, also helped KFC’s sales.

At Taco Bell, the relaunch of $1 nacho fries as well as the $1 Triple Melt Burrito helped boost same-store sales 5 percent in the third quarter, better than the 3 percent that was forecast.

Pizza Hut remains a dark spot for the company. Same-store sales fell 1 percent, as the pizza chain struggled to differentiate itself from competitors and attract new customers, Creed said.

“First of all, Pizza Hut is a slow turnaround,” he said. “We [have] got to do a better job of communicating value … do I think we can do better with Pizza Hut in the U.S.? Yes, I do.”

Pizza Hut has been trying to turn itself around in the U.S. by ramping up its value offerings, such as large two-topping pizzas for $5.99 and marketing heavily during football games. However, not all franchisees have adopted these new prices. Creed said the ones that have instituted the cheaper pies are performing better.

“We’ve got a new agency, … the team is all over it, and I think you will see us going forward with what I’ll call sharper and more distinctive advertising and communication around this compelling value that we offer,” Creed said on an earnings conference call Wednesday.

Correction: This story was revised to clarify a statement by Yum Brands CEO Greg Creed on CNBC’s “Squawk on the Street” on Wednesday. He said that delivery will be available at 2,000 KFC locations in the U.S. and 4,000 Taco Bells by the end of the year.

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