Yum! Brands Earnings Fall, but China Outlook Turns Bullish

Joe Goldman  |

Yum! Brands (YUM) shares traded after hours on Wednesday after the company missed sales estimates, but delivered an earnings beat and a positive outlook on China.

Yum reported net income of $281 million, or $0.56 per share excluding special items, versus the $331 million, or $0.67 per share, from the same period a year ago. Revenue for the quarter was $2.90 billion, as compared to $3.17 billion from the previous year. Analysts were expecting a profit of $0.54 per share on revenues of $2.93 billion.

Yum experienced a 20 percent decline in Chinese same-store sales for the quarter, which drove sales and earnings significantly lower from the previous year. However, investors reacted positively to commentary on China, where Yum earns about half its revenue.

“KFC sales and profits in China were significantly impacted by intense media surrounded Avian flu, as well as the residual effect of the December poultry incident. The good news is that China sales are recovering as expected. The extensive media surrounding Avian flu in China has subsided and same store sales at KFC are clearly improving,” said CEO David C. Novak.

With negative publicity mostly in the rearview mirror, Yum expects same-store sales growth in China to turn positive next year. The company also plans to continue its ambitious growth strategy in Asia, opening at least 700 Pizza Huts in China this year and aggressively expanding its operations in India and other emerging markets.

Domestically, same-store sales increased 1 percent, including growth of 2percent at Taco Bell and 3 percent at KFC, although same-store sales declined 2 percent at Pizza Hut. Yum was especially pleased with Taco Bell’s performance, citing food innovation such as the Doritos Locos Tacos as the driver for solid performance.

U.S. operating profit grew 4 percent, which was negatively impacted by 3 percentage points due to refranchising.

With a recovering business and China and solid performance in the U.S., Novak spoke positively about Yum’s prospects moving forward. “We expect a strong bounce-back year in 2014 as we continue to aggressively invest behind our core strategies and capitalize on the enormous growth opportunities we see around the world.”

Yum’s earnings report sent shares up 39 cents to $72.75 during after hours trading. Shares are up nine percent year-to-date and trade around two dollars short of 52-weak highs.

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