Additional Coverage:
Yum Brands is set to release its quarterly earnings report Thursday morning, amid a challenging situation tied to a foodborne illness outbreak linked to iceberg lettuce served at certain Taco Bell locations.
Since the U.S. Food and Drug Administration connected the parasitic cyclosporiasis outbreak to Taco Bell’s lettuce, the chain has experienced a sharp decline in customer visits, with daily traffic dropping by double digits, according to data from Placer.ai. This decline has contributed to a 5% drop in Yum Brands’ stock price, reducing its market value to approximately $42 billion.
The Centers for Disease Control and Prevention (CDC) reports that the outbreak has affected at least 1,947 individuals, resulting in 98 hospitalizations but no fatalities as of last Friday. Investigations have identified iceberg lettuce supplied by Taylor Farms as the likely source.
Taco Bell’s troubles carry significant weight for Yum Brands, which relies heavily on the chain as one of its two primary growth drivers-the other being KFC’s international operations. Taco Bell has been a standout performer within Yum’s portfolio, boasting a devoted customer base and consistent same-store sales growth, even as consumers become more price-conscious.
In addition to Taco Bell and KFC, Yum owns Habit Burger & Grill, a smaller chain with fewer than 400 locations. While KFC’s international business is thriving, its U.S. sales have declined to the point that Yum no longer reports them separately.
Habit Burger remains a minor player and is seldom mentioned during earnings calls. Notably, Yum recently sold off Pizza Hut, a longtime but struggling brand, placing even greater focus on Taco Bell at a difficult moment.
Wall Street analysts expect Yum to report second-quarter earnings of $1.58 per share on $2.2 billion in revenue, with Taco Bell projected to show 7% same-store sales growth for the period, which ended before the lettuce outbreak was linked to the chain. However, concerns loom over the impact on Taco Bell’s performance in the latter half of the year.
RBC Capital Markets analyst Logan Reich noted that while the outbreak likely had minimal effect on second-quarter results, it is expected to weigh on third and fourth-quarter performance. He suggested the recent drop in Yum’s share price might present a buying opportunity if customer confidence in Taco Bell’s food safety can be restored.
Seven analysts have revised their full-year earnings estimates for Yum downward since the end of June, according to FactSet data.
In response, Taco Bell removed the affected iceberg lettuce from its restaurants by mid-July and CEO Sean Tresvant issued an open letter to customers pledging transparency and a commitment to safety. The chain is also leveraging promotional offers, including $1 deals on popular items like Enchiritos, nacho fries, and the Mexican Pizza, to entice diners back.
Public reaction on social media has been largely supportive, with many customers expressing continued loyalty despite the outbreak.
Nevertheless, the outbreak persists, particularly in Michigan, the apparent epicenter. While Health and Human Services Secretary Robert F. Kennedy Jr. described the situation as “under control,” the CDC has not yet declared it over.
Historically, foodborne illness outbreaks can have lasting effects on restaurant chains. Chipotle, for example, endured multiple outbreaks between 2015 and 2018, suffering significant sales declines before recovering through leadership changes and enhanced food safety measures.
More recently, McDonald’s faced a deadly E. coli outbreak linked to its Quarter Pounder burgers, resulting in steep traffic declines in affected regions. The chain rebounded within months after the crisis ended, aided by new marketing efforts and supplier changes-including ending its relationship with Taylor Farms.
As Yum Brands navigates this challenging period, the performance of Taco Bell will be critical to the company’s overall recovery and future growth prospects.