Yum! Brands (YUM) Posts Yummy Earnings

Yum Brands (YUM: Charts, News), the parent company of KFC, Taco Bell and Pizza Hut, posted strong fourth quarter and full-year earnings earlier this week. Yum recently sold its Long John Silver's and A&W brands and currently operates over 37,000 restaurants worldwide. The company, which had been boosted by massive Chinese saturation over the past few years, posted fourth quarter earnings of 75 cents per share on revenue of $4.1 billion, which was a 19% and 15% gain in earnings and revenue, respectively, over the prior year quarter.

This marks the fourth consecutive quarter of gains for the company. Daily Chart
China, one of the company's three primary business segments, posted 39% year-over-year growth in revenue. Chinese sales, primarily boosted by KFC and Pizza Hut, now comprise 46% of the company's total sales. Yum also made headlines in China when it finished its acquisition of local hotpot chain, Little Sheep Group, which operates 470 restaurants across the mainland, on February 1. The acquisition is expected to increase the company's reliance on Chinese revenue and local market penetration beyond its flagship fast food brands. Yum opened 656 Chinese restaurants in 2011, and is preparing to expand aggressively into other emerging markets such as India, Russia and Africa. The company is separating its Indian market into a fourth business segment starting this year. In 2011, Yum currently added 100 locations in India, its second largest market for new restaurants, and expects to add 101 in 2012. "While we don't expect meaningful profit contributions from India this year," commented CEO David Novak, "we are laying the foundation for this business to have a significant impact on Yum's profit growth in the future." The company is planning to open 20 new locations within Africa as well. For 2011, its combined international markets brought in 65% of the company's total revenue. As expected, Yum's numbers were fairly stagnant in the United States, posting an anemic 1% gain in revenue for the quarter. Pizza Hut led the pack with 6% growth, offsetting a 2% decline at Taco Bell and a 1% drop at KFC. Taco Bell, which accounts for 60% of the company's U.S. profit, has been Yum's primary domestic weakness. The chain suffered PR damage last year after a lawsuit stated that its beef filling could no longer legally be classified as beef, which exacerbated its prolonged slump. Yum has attempted to revitalize interest in Taco Bell's menu by offering a new breakfast menu in 800 locations and introducing tacos with Doritos Nacho-cheese flavored shells in March. Despite weak growth, the company posted a 10% increase in U.S. operating profit. Novak was upbeat regarding the growth potential in the domestic market. "We expect profit growth from our U.S. businesses this year and more consistent performance going forward," he stated. For the full year, the company's earnings per share rose to $2.87 per share from $2.53 in fiscal 2010. Yum's full-year revenue jumped 11% to $12.6 billion, the largest gain since the 12% rise it posted in 2002. To top off all the strong numbers, Yum has also consistently increased its dividend since 2004, with its latest 14% increase occurring last September. Shares of Yum currently yield 1.8%. For the next year, however, Yum posted lower than expected guidance, forecasting earnings growth at 10% compared to Wall Street expectations of 12%. The company cited concerns regarding higher commodity prices which are forecast to impact menu items and force price increases. Food and paper expenses rose 23% during the fourth quarter, which caused a 160 basis point drop in operating margin to 11.2%. Shares currently trade at 17.4 times forward earnings, at a slight premium to rival McDonald's (MCD: Charts, News) 15.8. Other News About YUM Yum! Brands to continue bullish growth after posting 30% profit Yum Brands beats the Street and promises healthy growth. Little Sheep adds choice of Yum-my flavors Yum expands further into China by acquiring a local hotpot chain. Other Stocks in the News McDonald's Delivers A January Comparable Sales Increase Of 6.7% McDonald's keeps posting healthy same-store gains. Wendy's scores with new strategy Wendy's changes gears and starts to gain momentum. 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Published on Feb 9, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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