The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Sebastian Pellejero

NEW YORK, Nov 4 (Reuters Breakingviews) - The new CEO at Yum Brands YUM.N looks ready to slice up the joint. Chris Turner only sat down at the head of the fast-food table a month ago, but on Tuesday he kicked off a formal strategic review, often code for a sale, of Pizza Hut. Extra cheese in the form of more capital and business-model upgrades is unlikely to be on the menu. Offloading the chain to beef up Taco Bell and KFC would be the tastier financial option.

It's easy to understand why Turner has lost his appetite for tomato and cheese pies. Pizza Hut's share of Yum operating profit has tumbled to 11% from 17% in early 2023. Sales at U.S. stores open at least a year dropped 6% in the third quarter from the same span in 2024, while the operating margin thinned by more than 4 percentage points. Management blames technology spending, but there's a bigger issue.

Every store closure, format shift or pricing change requires negotiating with the independent operators of some 20,000 franchises struggling because paying to spruce up stores has become a more regular occurrence. EYM's 77 Pizza Huts sold for about $12 million in a fire sale earlier this year. Another franchisee is shuttering 68 locations and a third, India's Sapphire Foods SAPI.NS, has halted expansion.

Successful makeovers capitalize on positions of strength. From 2010 to 2015, rival Domino's DPZ.O invested heavily in online ordering, delivery tracking and store remodeling. A McDonald's MCD.N turnaround under then-CEO Steve Easterbrook cost $6 billion, largely fundedby franchisees. Both worked partly because restaurants were healthy enough to help pay for them.

Under Pizza Hut's weaker circumstances, the $40 billion Yum would be better off selling, even at a discount. The chain is expected to generate $340 million of earnings before interest and taxes this year, according to estimates gathered by Visible Alpha. At 10 times that operating profit, a deep-dish discount to the 21 times at which peers Domino's and Papa John's PZZA.O trade on average, the enterprise would be worth just $3.4 billion.

Any proceeds could be more productively used to buy back Yum shares or invested in faster-growing fried chicken and tacos. Take out the pizza, and a KFC and Taco Bell combo meal should command a higher valuation, too. It fetches less than 21 times forecast 2026 earnings, below Burger King and Popeyes owner Restaurant Brands QSR.TO and McDonald's. In the end, Turner will probably land on the best recipe, but it may prove tougher to deliver.

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CONTEXT NEWS

Yum Brands said on November 4 that it was exploring strategic options for its Pizza Hut chain as the unit struggles to keep pace in the highly competitive fast-food industry.

Goldman Sachs and Barclays are advising the company.

(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on PELLEJERO/ Sebastian.Pellejero@thomsonreuters.com))