Yum Brands faces a Taco Bell traffic crisis that earnings alone can't fix

Yum Brands reports second-quarter earnings before the bell Thursday, but the number that will dominate the call isn't on the financial statements. It's the traffic plunge at Taco Bell.

Daily visits to the chain have fallen by double digits since the FDA linked a cyclosporiasis outbreak to lettuce served at Taco Bell, according to Placer.ai data. Shares are down 5% over the same period, trimming market value to about $42 billion.

The outbreak has sickened at least 1,947 people, with 98 hospitalizations and no deaths as of Friday, the CDC said. Federal health agencies identified iceberg lettuce supplied by Taylor Farms as the likely culprit.

For Yum, Taco Bell isn't just another brand. The company calls it one of its two "twin growth engines," alongside KFC's international business. Taco Bell has delivered same-store sales growth every quarter, even as inflation pinched diners. It has a loyal fan base and a reputation for value that insulated it from the pullback hitting other fast-food chains.

That makes the timing particularly bad. Yum recently divested Pizza Hut, which had struggled for more than a decade. KFC's U.S. sales have slipped so much that the company no longer breaks them out. Habit Burger & Grill, a more recent acquisition, has fewer than 400 locations. The portfolio now leans harder on Taco Bell than it has in years.

Wall Street expects second-quarter earnings of $1.58 per share on revenue of $2.2 billion, according to a survey of analysts by LSEG. Taco Bell is forecast to report same-store sales growth of 7% for the quarter, which ended more than a month before the FDA linked the chain to the outbreak.

The damage shows up in the second half. RBC Capital Markets analyst Logan Reich cut his Q3 and Q4 estimates for Taco Bell in a July 21 note.

"We think the recent outbreak likely has minimal impact on Taco Bell's Q2 results, though debate around impact on Q3 and beyond is the key driver of the stock recently," Reich wrote. "Given the recent selloff in shares, this may create an opportunity to the degree that consumer confidence in TB's food safety is not materially impaired beyond this outbreak."

Seven analysts have cut their full-year EPS estimates for Yum since June 30, according to FactSet.

Taco Bell is trying to win customers back. It pulled affected iceberg lettuce from its restaurants by July 17. CEO Sean Tresvant wrote an open letter to diners five days later. "We aren't entitled to your loyalty. We earn it one meal at a time," he said, pledging to put safety first. The chain sold Enchiritos and nacho fries for $1 on the same day the letter came out. On Tuesday, it sold its cult-favorite Mexican Pizza for $1.

Social media responses were largely positive. "I still luv u Taco Bell," former reality TV personality Lo Bosworth wrote on an Instagram post from the chain.

But the outbreak is not over. Daily cases in Michigan, the apparent epicenter, keep rising. Health and Human Services Secretary Robert F. Kennedy Jr. told reporters the outbreak is "under control," but the CDC has not declared it contained.

At their worst, foodborne illness outbreaks can weigh on sales for years. Chipotle Mexican Grill was implicated in five separate outbreaks between 2015 and 2018. Same-store sales fell by double digits for a full year. A new CEO, paid sick days for employees, and an enhanced food safety program eventually turned the chain around.

Industry analysts largely expect Taco Bell to follow the McDonald's playbook instead. In late 2024, the burger chain was linked to a deadly E. coli outbreak tied to its Quarter Pounder. Traffic fell steeply, then recovered within weeks after the CDC declared the outbreak over. Weaker traffic lingered into the first quarter of 2025, but domestic sales rebounded by the second quarter, helped by the launch of a Minecraft Movie Meal, according to M Science. McDonald's also cut ties with Taylor Farms, the supplier of the slivered onions linked to its outbreak.

Taco Bell's stock page and broader market analysis are available on AlphaScala. Chipotle's stock page shows an Alpha Score of 34 out of 100, labeled Weak, in the Consumer Discretionary sector.

For Yum, the earnings call will test whether the traffic dip is a short-term scare or something deeper. The answer may take another quarter to arrive.