Yum! Brands Inc.
(
YUM
) the parent company of Pizza Hut, KFC and Taco Bell, is slated to
release its third quarter 2012 results on October 9, after the
closing bell. The current Zacks Consensus Estimate for the third
quarter is at 97 cents per share on revenue of $3,634.0 million.
Earnings Surprise
Yum! Brands outperformed the Zacks Consensus Estimate three times
over the trailing four quarters, with earnings surprises varying in
the range of negative 4.29% to positive 1.22%. The average earnings
surprise was 0.60%. This implies that the company has beaten the
Zacks Consensus Estimate by this magnitude over the last four
quarters.
Previous Quarter Performance
Kentucky-based Yum! Brands reported second quarter 2012 adjusted
earnings of 67 cents per share which fell short of the Zacks
Consensus Estimate of 70 cents. Earnings nudged up just 1% year
over year. On a reported basis, Yum! Brands' quarterly earnings
were 69 cents per share, up 6% year over year.
The company reported a 12% year-over-year increase in total revenue
to $3,168 million. Sales growth was fueled by a 27% increase in the
China division as well as 7% and 1% upside in the U.S. and Yum!
Restaurants International (YRI) division, respectively.
Comparable-restaurant sales (comps) improved 10% in mainland China,
4% in YRI and 7% in the U.S. division. In the quarter under review,
Yum! Brands witnessed a spike in its overall cost structure.
However, consolidated operating profit grew 8% year over year,
considering foreign-currency translation.
Outlook
The company reiterated its full-year 2012 earnings per share growth
expectation of at least 12.0%.
Zacks Consensus
The analysts covered by Zacks expect Yum! Brands to post earnings
of 97 cents per share for the third quarter of fiscal 2012, higher
than the prior-year earnings of 83 cents. Currently, the Zacks
Consensus Estimate ranges between 94 cents and $1.05 a share.
Estimates Revisions Trend
Estimates for the to-be reported quarter remained unchanged in the
last 60 days, implying that the analysts are maintaining their
outlook on the stock. Of the analysts covering the stock, 70% were
positive while 30% adopted a neutral stance on the stock.
Agreement of Estimate Revisions
In the last 7 days, one out of 18 analysts covering the stock
increased the second quarter estimate while none decreased it. For
2012, out of 20 analysts, one has moved the estimate up, while one
has moved down, implying no clear directional pressure. For 2013,
two analysts have lowered the estimate while none moved in the
opposite direction.
Magnitude of Estimate Revisions
Over the past 60 days, Yum! Brands' estimates for the third quarter
did not change. Therefore, the analysts expect the company to
report in line. For the same period, the estimates for 2012 also
remained unchanged at $3.26. However, the estimate for fiscal 2013
was reduced by a penny in the last 7 days. Currently, the Zacks
Consensus Estimates for 2013 is $3.71 per share.
Our Take
We believe, Yum! Brands' performance in the U.S. will depend on
Taco Bell's momentum. Taco Bell, which accounts for more than 60%
of the total U.S. earnings, registered a solid 13% gain in comps in
the second quarter of 2012 after a 6% increase in the first
quarter. The huge success of the Doritos Locos Tacos' launch paved
the way for Taco Bell in the U.S. The company takes a more
optimistic stance for Taco Bell backed by the July launch of
Cantina Bell, which was a Fast Casual type offering at discounted
prices.
Another area of observation will be the performance in China, Yum!
Brands' major growth market, as well as cost pressure and its
impact on margins. Despite delivering depressed margins in
second-quarter 2012, Yum! expects modest margin improvement in the
latter half of 2012 and double-digit profit growth mainly backed by
strong top-line growth.
Moreover, this quick service restaurant company remains on track
to achieve its annual earnings per share growth target through unit
development, comparable-store sales growth, revitalization of the
core brand of the U.S. Taco Bell and share repurchases as well as
dividend payments.
However, stiff competition from other quick-service restaurant
operators like
Brinker International, Inc.
(
EAT
), increased tax rate for full-fiscal 2012, concerns over European
economies, slowdown in China, wage inflation and margin pressure
pose as near term offsets.
Yum! Brands currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. We are also maintaining our
long-term Neutral recommendation on the stock.
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