They were, in fact, NOT finger lickin’ good.

After getting smacked with a $4.3 billion tax scare in june… Yum Brands desperately needed a distraction (at the very least). Something that screamed, “Hey, forget about the IRS trying to repo our mashed potatoes… look how many tacos we sold!” But instead of pulling off a much-needed earnings beat, the company delivered what can best be described as a warm soda and cold fries kind of quarter. In other words, underwhelming. (Apparently, “No one outPizzas the Hut” didn’t account for customers.)

Let’s start with the actual numbers. For Q2, Yum Brands (the parent of KFC, Pizza Hut, and Taco Bell) reported adjusted earnings per share of $1.44, missing Wall Street’s $1.46 estimate. Revenue came in at $1.93 billion, also just shy of the $1.94 billion analysts were expecting. Sure, on paper, these are small misses. But in a quarter where the IRS is breathing down your neck for Oprah Winfrey’s net worth, “almost” doesn’t cut it.

And here’s where it really starts to slide downhill. We already know sales in Europe are drying up… markets like the UK and Germany have been soft for a while, and Turkey was a full-blown franchise implosion after Yum abruptly cut ties with its operator and shuttered over 500 locations. But now the U.S. business is flailing too. For instance, KFC and Pizza Hut both posted an egregious 5% drop in same-store sales domestically. Which is a clear message from customers: “Thanks, but no thanks.”

(Source: CNBC)

I mean, take KFC for example. The fried chicken giant (once comfortably perched as the #3 chicken chain in America) has now slipped all the way down to #5. That’s right, both Raising Cane’s and Wingstop have leapfrogged the Colonel, who, at this point, might want to hang up the white suit and call it a career. It makes you wonder if this is a weak quarter, or a brand in full-blown decline (as the new competition wipes the floor with them). To Colonel’s credit, the old man’s tried every new idea he can to compete (nuggets, smashed chicken sandwiches, even reviving the cholesterol-filled fever dream known as the Double Down) and still, consumers are flocking to competitors. (Apparently, America wants chicken tenders and fountain drinks, not nostalgia with gravy.)

Pizza Hut isn’t faring much better than KFC. U.S. same-store sales fell 5%, while international sales dipped 1%. Domino’s is still slicing through the market with digital ordering and value deals, Papa Johns is holding steady, and Pizza Hut? They’re still clinging to stuffed crust like it’s 1995. (It was barely revolutionary then, and it’s not saving them now.)

That leaves Taco Bell carrying the weight of Yum’s entire portfolio like a duct-taped life raft. It posted a 4% same-store sales gain, which is… fine, but still short of the 5.6% analysts were looking for. Meaning: even Taco Bell (the stoner-approved, Doritos-shell-champion) didn’t do enough to offset the carnage. And if Taco Bell starts slowing, there’s no Plan B. Cheez-It pizza certainly isn’t it.

Then you throw in the IRS issue and things get scarier. Back in 2014, Yum shuffled assets in a restructuring they believed qualified as tax-free under Section 368. The IRS disagrees… to the tune of $2.1 billion in back taxes, $418 million in penalties, and over $1.5 billion in interest. That’s $4.3 billion total, or nearly two years of pre-tax profit. They’ve already lost this fight twice in Tax Court, but they’re rolling the dice in federal court, hoping for a miracle. In the meantime, that liability is glaring at investors like a neon “Danger” sign.

(Source: USA Herald)

I guess Wall Street isn’t panicking just yet… the stock’s still up 10% over the past year, after all. But if Yum doesn’t turn this around soon, the next earnings call could get real uncomfortable, real fast. And let’s be honest: if it weren’t for Taco Bell carrying the team like LeBron in a Game 7, the Colonel’s once-mighty empire would’ve been sent out to pasture already, biscuits and all.

At the time of publishing this article, Stocks.News doesn’t hold positions in companies mentioned in the article.