Yum Brands (YUM) Posts a 23% Increase in Profit, Topping Estimates

Shares of Yum Brands (YUM: Charts, News) soared on Wednesday, after the parent company of Taco Bell, KFC and Pizza Hut surprised the Street with a 23% increase in earnings from the prior year quarter. The stock pulled back slightly on Thursday, but retained most of its hefty gains from the prior trading session.

For its third quarter, which ended on September 8, Yum Brands posted diluted earnings of $1 per share, or $471 million, up from the diluted 80 cents per share, or $383 million, a year earlier. Revenue rose 9.2% from $3.27 billion to $3.57 billion. The company's top line came in short of analyst projections of $3.64 billion, but its bottom line beat the consensus estimate of 97 cents per share. Daily Chart
Yum's U.S. division posted same-store sales growth of 6%, a significant improvement from the 3% decline it posted a year earlier. All three of its flagship brands posted positive same-store sales growth, with Taco Bell leading at 7%, followed by Pizza Hut at 6% and KFC at 4%. However, revenue in its U.S. restaurants slid 10% from $873 million to $787 million. In China, where Yum generates over half of its revenue, the company's same-store sales growth dropped to 6%, a significant slowdown from the 19% growth it posted in the prior year quarter. Store traffic growth also declined by 1%, a steep drop from 27% traffic growth last year. This dip in store traffic was partially offset by an increase in menu prices, which also helped balance out an 8% increase in wages and a 2% spike in commodity prices. Despite these challenges, Yum's China restaurant margin inched up 0.1 percentage point to 21.4%. Total revenue in China increased 24%, from $1.6 billion to $1.99 billion, while operating profit rose 24% to $374 million. Yum opened 192 new restaurants in China during the third quarter, and is on track to meet its target of opening at least 600 new restaurants in China by the end of fiscal 2012. 150 of these locations will be Pizza Hut Casual Dining locations, which Yum is preparing to introduce into mainland China's interior cities. "We're able to capitalize on China more than any company in the world," stated CEO David Novak. "We'll have our ups and downs, but I'll always be glad to wake up every day and know we have the position we have in China." Yum's International division, which includes all overseas holdings excluding China, posted a 1% dip in revenue, from $779 million to $769 million, while operating profit rose 7% from $173 million to $163 million. Yum attributed the slight dip to the Muslim holiday of Ramadan in July and August, during which many Muslims fast and abstain from food and drink. Looking forward, Yum still expects a "volatile and slowing economy" in China to cast a short term shadow over the company's earnings this year. CFO Patrick Grismer also declined to give exact same-store estimates for the full year, stating, "At this point, our best estimate is that China same-store sales will be low single digits to flat." Shares of Yum trade at 18.5 times forward earnings with a 5-year PEG ratio of 1.6. The stock pays a quarterly dividend of 34 cents per share - a 1.9% yield at current prices. Other News About YUM Yum! BrandsprofitbeatsQ3 estimates Yum surprises investors and tops the Street estimates. YumsaysequippedtonavigateChina's "upsanddowns" Despite a slowing economy, Novak expresses confidence in Yum's profitability. Other Stocks in the News Apple: iPadMiniAboutCost, orValue Will the iPad Mini be Apple's first misstep? GlaxoSmithKlinetorevealmoredrugsecrets GlaxoSmithKline offers further transparency to regulators after fraud charges. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Oct 12, 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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