01—Abstract
Summary
Summary of the 10-Q filed August 5, 2026. Cited figures are marked; the original filing is the authoritative source.
Yum!
Brands, Inc. reported second-quarter 2026 GAAP net income of $853 milliona, or $3.08 per diluted share, versus $374 million, or $1.33 per diluted share, in the prior-year quarter. Total revenues rose to $2.169 billion from $1.933 billion, and Operating Profit increased to $655 million from $622 million. Results were significantly affected by a $359 million net deferred tax benefit tied to the planned Pizza Hut sale, which drove a negative quarterly effective tax rate of (60.1)%.
Excluding Special Items, diluted EPS was $1.62b versus $1.44 a year earlier, and Core Operating Profit was $683 million versus $650 million. On June 16, 2026, the company entered into two definitive agreements to sell the Pizza Hut brand: Pizza Hut excluding Mainland China to LongRange Capital, and Pizza Hut in Mainland China to Yum China Holdings, Inc. The company expects approximately $2.3 billion of net proceeds across both transactions, with closings anticipated in August 2026, and an additional $75 million earn-out opportunity by 2030. Proceeds are expected to first pay down revolving borrowings, with the majority of the remainder set aside for share repurchases; the Board authorized up to $4 billion of incremental buybacks through June 30, 2028.
Balance sheet items warrant attention. Short-term borrowings rose to $2.813 billionc from $38 million, largely because the Term Loan A and Revolving Facility were reclassified to current liabilities given the timing of the $750 million Subsidiary Senior Unsecured Notes maturing June 1, 2027. Long-term debt declined to $9.462 billion from $11.872 billion, and total shareholders' deficit was $(7.107) billion.
The filing also discloses an unreserved IRS proposed adjustment of approximately $2.1 billiond in tax plus $418 million in penalties for fiscal 2014, with interest of approximately $2.3 billion accruing through June 30, 2026, and an India regulatory penalty order of approximately $120 million that the company contests. Taco Bell U.S. also reported a meaningful near-term sales impact from a July 2026 lettuce recall.
02—Key points
Key Highlights
- Net income of $853 million ($3.08 diluted EPS) for the quarter, versus $374 million ($1.33) a year earlier, aided by a $359 million net deferred tax benefit tied to the Pizza Hut sale.
- Total revenues of $2.169 billion, up from $1.933 billion; Operating Profit of $655 million, up from $622 million.
- Diluted EPS excluding Special Items of $1.62, versus $1.44 in the prior-year quarter; Core Operating Profit of $683 million versus $650 million.
- Pizza Hut sale agreements (June 16, 2026) expected to generate approximately $2.3 billion of net proceeds, with closings anticipated in August 2026.
- Board authorized up to $4 billion of incremental share repurchases through June 30, 2028; $0.4 billion remains under the May 2024 authorization.
- Short-term borrowings increased to $2.813 billion from $38 million as Term Loan A and Revolving Facility borrowings were classified as current; cash was $674 million at June 30, 2026.
- Taco Bell U.S. expects Company restaurant margin of 19% to 21% in the quarter ending September 30, 2026, following a lettuce recall that the filing says had a meaningful near-term sales impact.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2026, Yum! Brands kept $0.39.
- Revenue$2.17B100.0%
- Cost of revenue−$700.0M32.3%
- Gross profit$1.47B67.7%
- Operating costs−$814.0M37.5%
- Operating income$655.0M30.2%
- Interest, other & tax$198.0M9.1%
- Net income$853.0M39.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2026filed August 5, 2026Financial Statements
Q2 FY2026 against Q2 FY2025
| Line item | Q2 FY2026Q2 FY2025 | Change |
|---|---|---|
| Revenue | $2.17B$1.93B | +12.2% |
| Cost of Revenue | $700.00M$560.00M | +25.0% |
| Gross Profit | $1.47B$1.37B | +7.0% |
| Operating Expenses | $1.51B$1.31B | +15.5% |
| Operating Income | $655.00M$622.00M | +5.3% |
| Net Income | $853.00M$374.00M | +128.1% |
| EPS (Basic) | $3.10$1.34 | +131.3% |
| EPS (Diluted) | $3.08$1.33 | +131.6% |
| Shares Outstanding (Basic) | 275.00M279.00M | −1.4% |
| Shares Outstanding (Diluted) | 277.00M281.00M | −1.4% |
05—Questions
Frequently Asked Questions
Why was the second-quarter effective tax rate negative?
The effective tax rate was (60.1)% due to a $359 million net deferred tax benefit recorded upon entering agreements to sell Pizza Hut, which recognized certain tax basis in entities expected to be sold. The company also recorded tax benefits of $91 million in the quarter related to an internal reorganization of Pizza Hut entities. Excluding Special Items, the effective tax rate was 22.3% for the quarter.
What are the expected proceeds and timing from the Pizza Hut sale?
The company expects approximately $2.3 billion of net proceeds after taxes, closing adjustments and transaction-contingent fees across two transactions, with closings anticipated in August 2026 subject to customary conditions and regulatory approvals. YUM may also receive a $75 million earn-out from LongRange Capital by 2030. The company expects to use proceeds first to pay down Revolving Facility borrowings, with the majority of the remainder set aside for share repurchases.
Why did short-term borrowings increase so sharply?
Short-term borrowings rose to $2.813 billion from $38 million at December 31, 2025. The filing states that current maturities of long-term debt were $2.823 billion, and the Term Loan A and Revolving Facility were classified as short-term because $750 million of Subsidiary Senior Unsecured Notes mature June 1, 2027 and have not yet been paid or refinanced by at least $500 million 91 days before that date. The company expects to refinance those notes before that deadline.
What is the status of the IRS dispute?
The IRS asserts an underpayment of approximately $2.1 billion plus $418 million in penalties for fiscal 2014, with interest of approximately $2.3 billion accruing through June 30, 2026. The company filed a Tax Court petition on June 4, 2025, contests the position vigorously, and has recorded no reserve because it believes it is more likely than not its position will be sustained. The filing says an unfavorable resolution could have a material adverse impact on future financial statements.
How did Taco Bell U.S. and the recall affect results?
Taco Bell U.S. removed certain lettuce from its nationwide supply chain in July 2026 after a vendor recall, and the filing states this had a meaningful near-term impact on sales. The company says sales are improving from their low point and expects Taco Bell U.S. Company restaurant margin of 19% to 21% in the quarter ending September 30, 2026. Taco Bell Division Operating Profit for the quarter ended June 30, 2026 was $311 million, up 19% from the prior year.
06—Continue