Taco Bell same-store sales rose 7% and adjusted EPS grew 12.5% to $1.62, while a $449M tax benefit tied to the Pizza Hut sale more than doubled GAAP EPS to $3.08.
Revenue
$2.2B
+12.2% YoY
Net income
$853M
+128.1% YoY
Diluted EPS
$3.08
+131.6% YoY
Operating margin
30.2%
How YUM compares with Consumer Discretionary peers
Figure
YUM
Peer median
Rank
Revenue growth (YoY)
+12.2%
+6.0%
9th of 43
Operating margin
30.2%
15.6%
4th of 43
EPS growth (YoY)
+131.6%
+5.7%
5th of 41
Rank 1 = fastest revenue growth, highest operating margin, fastest EPS growth. Peers are the other Consumer Discretionary companies with a 2026 report on this site, each at its latest period we've analyzed; fiscal calendars differ, so periods are not always the same months.
Taco Bell carried the quarter while Yum! agreed to sell Pizza Hut
Yum! Brands' second quarter (April–June 2026) was, underneath the noise, a steady one: revenue rose 12% to $2.17 billion and operating profit rose 5% to $655 million, led by a 7% jump in Taco Bell same-store sales. The noise is large, though. Reported (GAAP) diluted earnings per share more than doubled to $3.08 from $1.33, but almost all of that gain is a one-time $449 million tax benefit tied to the decision to sell Pizza Hut. Stripping out those "Special Items," EPS was $1.62, up 12.5% from $1.44.
The quarter's real news was strategic. On June 16 Yum! signed two deals to sell Pizza Hut: the mainland China business to Yum China (closed August 7 for $1.2 billion) and everything else to private-equity firm LongRange Capital (closed September 1 for about $1.49 billion, plus a possible $75 million earn-out by 2030). Yum! is now KFC, Taco Bell and Habit Burger & Grill.
At a glance
Taco Bell same-store sales +7% (vs +4% a year ago) — the strongest brand got stronger, and its division operating profit rose 19% to $311 million.
Adjusted EPS $1.62, +12.5% — the honest measure of the quarter; the $3.08 GAAP figure is inflated by tax benefits that will be used up when the Pizza Hut sales close.
Excluding Pizza Hut: system sales +7%, units +6%, Core Operating Profit +8% — the business Yum! is keeping hit its own long-term growth targets exactly this quarter.
How Yum! makes money
Yum! is mostly a franchisor. Independent owners (franchisees) run the vast majority of its restaurants and pay Yum! a percentage of their sales as royalties and rent — the "franchise and property revenues" line ($895 million this quarter, up 7%). That income costs very little to earn, which is why KFC's division keeps 44 cents of operating profit per dollar of revenue. Yum! also runs some restaurants itself ("company sales," $837 million, up 25%), where it books the full sale but also pays for food, labor and rent, so those dollars carry much thinner margins. "System sales" is the total rung up by all restaurants carrying its brands, franchised or not — the base on which royalties are charged.
The numbers
Metric
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"Same-store sales" compares sales at restaurants open at least a year against the same period a year earlier, so it measures demand at existing locations rather than growth from opening new ones. "Ex-FX" means excluding the effect of currency swings.
Brand by brand: one strong, one steady, two weak
Division
System sales growth (ex-FX)
Same-store sales
Unit growth
Operating profit
Change
KFC
+6%
+2%
+7%
$410M
+13% (+9% ex-FX)
Taco Bell
+9%
+7%
+3%
$311M
+19%
Pizza Hut
-2%
-1%
+1%
$70M
-12% (-14% ex-FX)
Habit Burger & Grill
+7%
+3%
—
-$4M loss
vs $3M profit
Taco Bell is doing the heavy lifting. U.S. same-store sales grew 7% and international system sales grew 13%. The division's company-owned sales jumped 38% to $396 million mainly because Yum! bought 128 franchised Taco Bells in the Southeast U.S. in late 2025 for $666 million; the 10-Q says those stores, plus same-store growth, lifted company restaurant margins to 25.9% from 24.3%, partly offset by "higher labor costs, and commodity inflation (primarily beef)." The division's overall operating margin actually slipped to 36.4% from 36.8% — not because anything worsened, but because more of its revenue now comes from running restaurants (lower margin) rather than collecting royalties (higher margin). That is a mix effect, not a deterioration.
KFC grows mostly by opening restaurants, not by selling more at existing ones: 660 gross openings across 55 countries this quarter, unit count up 7%, but same-store sales only +2%. Geography matters a lot here. KFC U.S. system sales fell 2% and Europe was flat, while the Middle East/Turkey/North Africa grew 20%, India 16%, and Asia, Latin America and the U.K. each grew 10%. KFC's reported profit growth (+13%) also got a $14 million lift from currency; excluding that it was +9%. In June KFC began a brand and menu overhaul centered on boneless chicken, drinks and sauces, which it aims to roll out across its top 20 markets by end-2027.
Pizza Hut — now sold — was the drag. U.S. system sales fell 5% and Europe fell 11%. Operating profit fell 12%, which the 10-Q attributes to "higher advertising costs associated with the Pizza Hut U.S. Hut Forward program, the impact of operating restaurants acquired from franchisees and same-store sales declines."
Habit Burger & Grill is small (system sales +7%, same-store sales +3%) but swung to a $4 million operating loss from a $3 million profit, and $11 million in losses year to date.
What the headline numbers hide
The GAAP EPS doubling is almost entirely tax. Income tax was a benefit of $320 million this quarter (a -60.1% effective tax rate) versus a $125 million expense a year ago. The filing explains $359 million of this as a deferred tax benefit recognised when the Pizza Hut sale agreements were signed, plus $91 million from an internal reorganization that moved Pizza Hut intellectual property between subsidiaries (net of a $12 million Swiss tax-credit adjustment). Yum! says it expects "significant book gains" when the sales close in Q3, which will use up those deferred tax benefits. In other words, this benefit is largely a timing difference ahead of the sale gains, not recurring profit.
Operating profit also carried $44 million of one-off costs, mostly advisers' fees for the Pizza Hut review. Adding those back, operating profit was $699 million (32.2% margin) versus $650 million (33.6%) a year earlier. The consolidated margin decline is mostly the same mix effect seen at Taco Bell: company sales grew 25% while higher-margin franchise revenue grew 7%.
Where the 12.5% adjusted EPS growth came from. Core Operating Profit — Yum!'s measure excluding Special Items and currency — grew only 5%. The rest of the gap came from outside operations:
Currency added $16 million to divisional operating profit (roughly 2.5 points of growth).
Buybacks cut diluted shares to 277 million from 281 million (about 1.4 points of EPS growth). Yum! bought back $670 million of stock in the first half, double the $336 million a year ago.
The adjusted tax rate eased to 22.3% from 23.2%.
Working against it, interest expense rose 4% to $128 million on higher borrowings.
Cash conversion is fine once the tax item is removed. Year-to-date operating cash flow was $923 million (up from $850 million) against GAAP net income of $1,285 million — which looks weak until you note that $411 million of that income was non-cash deferred tax. Against adjusted net income of $867 million, cash flow covered it about 1.06 times. After $175 million of capital spending, free cash flow was about $748 million, while shareholder payouts (buybacks $674 million plus dividends $413 million) came to $1,087 million; the difference was funded by a $375 million net revolving-credit draw.
Leverage is intentional. Total debt was about $12.3 billion (short-term borrowings $2.8 billion plus long-term debt $9.5 billion) and shareholders' equity is negative $7.1 billion — a deliberate result of years of debt-funded buybacks. Management says it targets net debt of about 4 times EBITDA (earnings before interest, tax, depreciation and amortization).
Takeaway: Yum! has swapped a shrinking brand (Pizza Hut: U.S. system sales -5%, profit -12%) for $2.7 billion in cash, and what remains grew Core Operating Profit 8% this quarter on the back of Taco Bell. The question for the next few quarters is whether buybacks funded by the sale proceeds can offset the lost Pizza Hut profit — and whether July's Taco Bell lettuce recall dents Yum!'s best-performing brand.
Outlook
Management's guidance is unchanged: the long-term targets first set in 2022 — 5% unit growth, 7% system sales growth excluding currency, and at least 8% Core Operating Profit growth, on average over time. Yum! does not give a GAAP forecast because it can't predict Special Items or currency. This quarter the ex-Pizza Hut business matched those targets almost exactly (units +6%, system sales +7%, Core Operating Profit +8%); the company including Pizza Hut did not (+5% on all three).
Capital return is about to accelerate. Yum! says it will use the sale proceeds to pay down its revolving credit line and set aside "the majority of the remainder" for share repurchases. In June the board authorized up to $4 billion of new buybacks through June 2028, on top of $0.4 billion left on the prior authorization.
Things to watch in Q3 (July–September), results expected in early November:
The Taco Bell cyclospora outbreak. The 10-Q discloses that in July 2026 a multistate cyclospora outbreak led Taco Bell U.S. to remove certain lettuce from its nationwide supply chain, later recalled by its vendor. Q3 is the first quarter that could show any effect on Taco Bell's same-store sales.
Messy GAAP numbers again. Q3 will book the Pizza Hut sale gains and only part of a quarter of Pizza Hut results, so GAAP EPS will not be comparable; the ex-Pizza Hut figures will be the ones to track.
Our view: On H1 figures, Pizza Hut's division earned $135 million of operating profit — roughly 9% of divisional profit — and sold for about 10 times that half-year figure annualized (our arithmetic). Retiring shares with that money can plausibly offset the lost profit per share, but it leaves Yum!'s growth resting more heavily on Taco Bell's U.S. momentum and KFC's international unit openings. KFC U.S. (-2% system sales) remains the weak spot inside the brands being kept.