Yum! Brands stock under pressure after Taco Bell, KFC parent reported earnings

Yahoo Finance Live’s Brian Sozzi discusses Yum! Brands stock amid underwhelming reported earnings from the parent company of Taco Bell and KFC.

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BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. It's time for Sozzi's Takes. We've been talking a lot about a slew of earnings reports all morning long. No surprise that Sozzi's take today is on Yum Brands. OK, break this one down for us.

BRIAN SOZZI: Yeah, zooming in, as the 20 somethings would say, on profit margins within the fast food companies. Yum Brands out with earnings today. And really, by and large, margins-- operating profit margins were under pressure. KFC margins, they were down in the most recent quarter, despite the introduction of those new Beyond Meat chicken fingers, which I like. Nonetheless, margins down. Taco Bell profit margins down. Pizza Hut margins were up, which is interesting. And I have to make a note and go back to that a little bit later and dig into it more why that happened because it was not the norm.

Switching gears a little bit here, Starbucks, we heard from Starbucks last night. In addition to them rolling out drive-throughs and various other things, operating margins down 300 basis points year over year for Starbucks. And last but not least and lost in the sauce, the sauce here is Wingstop. Its margins were down 480 basis points year over year. And as you can see, our team right there, putting me holding a wing. And I am not surprised by that graphic at all.

But there are a couple of dynamics going on here, more so than the pressures related to higher wages. There is increased training costs. You heard Starbucks CEO Howard Schultz talk about that on the call last night. They're investing more to better train their workers. Bonus payments-- I think Schultz hinted at a potential bonus payment to workers on August 1, something to watch out for. Higher transportation costs, higher ingredient costs.

So margins are really under pressure across the board because of these factors, which gives me-- leads me to this-- my take here today is, you just may want to eat the food, not the stocks, because for as long as margins stay under pressure, it is likely the stocks, which have been under pressure for the past three months, they will probably stay under pressure.

JULIE HYMAN: There's one other thing that you didn't talk about.

BRIAN SOZZI: Look at that. That's great.

JULIE HYMAN: If I may. Usually you're very comprehensive, but there's one thing you need to talk about, and that's China, which I don't think Wingstop is exposed. They don't have any stores in China, right?

BRIAN SOZZI: No, they don't.

JULIE HYMAN: But the others do. And China was a big issue for Starbucks, Yum as well. We're seeing some weakness.

BRIAN SOZZI: Well--

JULIE HYMAN: Yum China is separate, I guess.

BRIAN SOZZI: Starbucks same store sales in China down 23%. And to your point, we've seen China being a weak point throughout many companies, and of course, fast food. And when that happens, you lose leverage over your sales. You're just essentially bringing less sales. And your expenses basically stay the same, hence you see profit margin pressure, like we saw with the fast food players. But I guess, everybody wants to know, what is our favorite fast food? Like, what are we going to? I'm going to Taco Bell. I'm going soft chicken taco supreme at 12:00 PM after six beers.

BRAD SMITH: Interesting.

JULIE HYMAN: 12:00 PM after six beers?

BRIAN SOZZI: Or seven.

JULIE HYMAN: 12-- wait. As of noon, you've already had six or seven beers?

BRIAN SOZZI: At midnight. Is that 12:00 PM? I'm drawing a blank.

JULIE HYMAN: That's 12:00 AM.

BRIAN SOZZI: All right, midnight.

JULIE HYMAN: Whew, I was getting a little worried about your aftershow and our team for a second there, Sozz.

BRIAN SOZZI: It hasn't come to that yet.

BRAD SMITH: And what led up to it?

BRIAN SOZZI: Brad, what do you got? What do you got for your fast food?

BRAD SMITH: I'm going to go Popeyes, actually.

BRIAN SOZZI: OK, fair enough.

BRAD SMITH: Yeah.

BRIAN SOZZI: Julie?

BRAD SMITH: Because you can smell it getting off the train in Brooklyn.

JULIE HYMAN: I don't--

BRIAN SOZZI: Don't eat fast food.

JULIE HYMAN: --eat fast food.

BRIAN SOZZI: I knew you were going to say that! I knew it! I knew it!

JULIE HYMAN: You know I like Chipotle.

BRIAN SOZZI: All right.

JULIE HYMAN: But that's not-- that's fast casual.

BRAD SMITH: Fast casual, yeah.

JULIE HYMAN: Yeah, exactly.