Yum! Brands Inc.
) reported first quarter 2012 adjusted earnings of 76 cents per
share, which beat the Zacks Consensus Estimate of 73 cents.
Earnings increased 21% year over year mainly on the back of
outperformance at its China division and other emerging markets. On
a reported basis also, Yum! Brands' quarterly earnings were 96
cents per share, up 76% year over year.
The company reported a 13% year-over-year increase in total
revenue to $2,743.0 million. System Sales growth was a respective
28%, 8%, and 1% in China, Yum! Restaurants International (YRI) and
the U.S. division, excluding foreign currency translation. The
divestiture of Long John Silver's and A&W brands adversely
affected worldwide System Sales growth by 2 percentage points,
including an effect of 5 percentage points to the U.S. and 1
percentage point to YRI.
Behind the Headline Numbers
Comparable-restaurant sales (comps) improved 14% in mainland
China. YRI and the U.S. division each witnessed a 5% rise in comps.
Comps went up 5% in the U.S., with increases of 6% at Taco Bell, 5%
at Pizza Hut and 2% at KFC. Comps increased 8% in Yum! Restaurants
In the quarter under review, Yum! Brands saw a spike in its
overall cost structure. Company-restaurant costs and general and
administrative (G&A) expenses increased 13% and 7%,
respectively. China and the YRI division were unable to reduce
their cost structures. However, their increases were partially made
up by a respective 13% and 4% cut in company-restaurant costs and
G&A expenses at the U.S. division.
Consolidated operating profit upped a handsome 61% year over
year. Major three geographic segments, China (up 19%; and up 14%
excluding foreign currency translation), YRI (up 7%; and up 9%
excluding foreign currency translation) and the U.S. (up 27%)
contributed to the growth. Foreign currency translation helped
operating profit by $8 million.
As expected, restaurant margin slipped 1.5 percentage points to
23.6% in China due to wage and commodity inflation. Restaurant
margin slid 0.6 percentage points to 12.2% in the YRI division hurt
by decreases in KFC UK, Pizza Hut Korea as well as increased costs
incurred due to last year's flooding in Thailand. However, margin
saw an improving trend increasing 3.7 percentage points to 14.4% at
the U.S. segment.
Strong performance in the China division during the quarter was
primarily driven by 168 new openings. Further, Yum! Brands
solidified its footprint internationally by opening 123 new units
in the quarter under review. On the whole, Yum! opened 250 new
restaurants in the fast growing emerging markets. Management
expects to open 100 new restaurants in India this year.
At quarter end, Yum! Brands had cash and cash equivalents of
$1,099.0 million with long-term debt of $3,006 million, and
shareholder equity of $2,279.0 million.
The company expects full-year 2012 earnings per share growth of
at least 12.0% (versus 10.0% projected earlier).
We still see China as playing the major role in Yum! Brands'
growth story. The U.S. segment is also rebounding slowly but at a
steady pace. The cloud over Taco Bell, which is the most
important brand in the U.S., seems to have dispersed. As a point of
reference, last year Taco Bell was hit with the allegation related
to the content and quality of its beef products. To mitigate all
negativity, the company planned three breakthrough innovations so
as to reignite the brand.
However, commodity inflation could continue to play foul
worldwide. Additionally, slowdown in economic growth in China,
which accounts for a major portion of consolidated operating
profit, concerns us. Stiff competition from other quick-service
restaurant operators also remains an overhang. Yum! Brands, which
), currently retains a Zacks #2 Rank (short-term Buy
recommendation). We reiterate our long-term Neutral rating.
MCDONALDS CORP (
): Free Stock Analysis Report
YUM! BRANDS INC (
): Free Stock Analysis Report
To read this article on Zacks.com click here.