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Should Yum Brands Dump Pizza Hut Amid Heat From Domino's, Papa John's?

Pizza Hut's share of the limited-service pizza business in the U.S. had shrunk to 14.5% in 2015, from 25% in 1995. (Shutterstock)

Yum Brands (YUM) just might be better off shedding Pizza Hut, an analyst said Thursday, as the unit struggles to stay relevant amid competition from Domino's Pizza (DPZ) and Papa John's (PZZA).

Instinet analyst Mark Kalinowski said in a research note that after some 20 years of shrinking market share, "it is time for Pizza Hut to be divested."

Citing figures from Technomic, he said Pizza Hut's share of the limited-service pizza business in the U.S. had shrunk to 14.5% in 2015, from 25% in 1995.

Both Domino's and Papa John's, Kalinowski noted, "are single-brand (read: focused) companies, while Pizza Hut is part of a much larger corporate entity. In that context, focus can be much more difficult to come by."

He said that Yum might be better off if it offloaded much of its ownership in Pizza Hut but kept a minority stake, in the same way Wendy's (WEN) has held a minority stake in Arby's.

Kalinowski's also said that Domino's looks "poised" to overtake Pizza Hut as the U.S. market-share leader among limited-service pizza chains, possibly this year or next.

Shares of Yum Brands finished 1.2% higher at 67.39 on the stock market today, still in buy range. Domino's increased 0.4% and Papa John's added 0.9%.


IBD'S TAKE: Within the restaurant industry, Domino's Pizza has been a leader in digital ordering. Read more about those efforts in IBD's interview with CEO Patrick Doyle.


Earlier Thursday, Yum Brands CEO Greg Creed on Thursday said Pizza Hut's fourth-quarter results were "disappointing and not acceptable," adding that outside experts would be reviewing the chain.

Overall, Yum's fourth-quarter earnings per share beat Street estimates. Revenue just missed views, while same-store sales came up short.

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