) posted misses of both the top and bottom line today.
Earnings per share (EPS) was expected to be $0.93, but came in at
$0.85, and revenues were expected to be $3.54 billion, but posted
$3.47 billion. Zacks models showed a large decline in
analysts' revisions over the past 60 days, and a potential
negative earnings surprise. Unfortunately, both came
This company produces more than half of their profits from
China, and sales in China declined 11% for the quarter.
This is the most crippling news, more damaging than the top and
bottom line numbers. 57% of all operating profits are
derived from emerging markets and most importantly China.
KFC is the most advertised, and most recognized restaurant brand
in China, and YUM has spent a large amount of money on
advertising in this country. Moreover, China was supposed
to be the great growth driver through 2015, for the
company. China was planning on expansion plans of
more than 20 new city clusters, trade zones, and transportation
hubs. And YUM was planning on purchasing many spots in
these new cities. But given the consistent decline of sales
in China, YUM might want to reconsider their massive expansion
plans in that country.
To further put pressure on YUM's management team, analysts are
expecting at least modest growth from their direct competitors,
). Another potential long term negative is the Avian Flu
epidemic in China, which is causing potential customers to stay
away from restaurants (impacting both MCD, and BKW, but not as
severely as it is impacting KFC). It will be interesting to
see if the decline in sales was solely due to the Avian Flu
epidemic, or if it was a function of customers taste.
This is the first negative earnings surprise by YUM Brands in
over four quarters, but the negative fourth quarter outlook will
have analysts revising their expectations within the next few
days. Zacks will have a detailed article out tomorrow.
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YUM! BRANDS INC (YUM): Free Stock Analysis
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