A smaller Yum Brands must now prove its worth

Yum Brands hopes that it can run faster now that it won’t have one foot in a bucket called Pizza Hut.

Or so that is the theory. The Louisville, Kentucky-based company reached a deal to sell its pizza chain in two different parts for $2.7 billion, as my colleague Alicia Kelso reported. That will now put the focus on what remains: Taco Bell, KFC, and Habit Burger & Grill.

Yum largely sold Pizza Hut because its turnaround requires more investment than the company is willing to make, and because the company doesn’t quite get the credit from Wall Street for its growth concepts Taco Bell and KFC International.

Investors to date have not exactly cheered the news. Yum’s stock was up slightly on Tuesday when the sale was announced. It is up less than 3% so far this year, roughly in line with the median for all restaurant stocks. The stock is up more than 12% since the company announced plans to offload the chain.

Yum, at least publicly, focuses largely on Taco Bell and KFC International. Those two businesses are mirror images of one another. Taco Bell is a U.S. powerhouse. KFC International is a global powerhouse—while its U.S. division has traditionally been weak.

A post-Pizza Hut Yum Brands will need to get those two brands operating similarly. Taco Bell will need to show some international growth.

By all accounts, Taco Bell had an amazing year. Its same-store sales grew faster than any major fast-food chain in the U.S. and it continued to develop new locations. Its system sales domestically grew 6.5%.

And yet that was lower than Yum Brands’ long-term investment algorithm, which calls for 7% system sales growth.

Taco Bell thus needs international growth, which it accomplished, with 8.1% unit growth outside the U.S. last year, according to Technomic, and 11.8% international sales growth. But its international presence is so small, with just about 1,200 of its more than 9,000 total locations, that its global system sales was 6.8%. Close, but not quite to 7%.

Then there is KFC. Outside the U.S., KFC is one of the world’s most aggressive developers of new locations. The company’s sales outside the U.S. grew 7.5% last year, according to Technomic, largely due to 7.3%-unit growth. But its global system sales grew just 5.8%, because its U.S. business continued to lose ground.

The issue with KFC has always been its U.S. weakness. While the brand’s domestic market has long been smaller and therefore less important to the brand globally, that weakness has held it back and diminished Yum’s reputation among investors. That will be an even bigger focus now that Yum no longer owns Pizza Hut.

“The U.S. business is symbolically and strategically important to us,” Scott Mezvinsky, CEO of KFC, told investors at a conference earlier this year.

Pizza Hut, as we noted earlier this week, faces some existential questions that go beyond even its weaker performance. So in a sense it makes sense that Yum would sell the brand.

And without having to worry about whether consumers will keep ordering pizza delivery, Yum can now focus its attention on those two big brands it still owns, not to mention Habit Burger & Grill.

KFC certainly has plans worldwide, as Kelso also wrote about this week. And Taco Bell has been getting more traction expanding outside the U.S. Yet both brands will be under a bigger microscope now that Yum won’t own Pizza Hut any longer.