We expect restaurateur Yum! Brands Inc. ( YUM ) to beat expectations when it reports second quarter results on Jul 10 after the closing bell.
Why a Likely Positive Surprise?
Our proven model shows that Yum! Brands is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method ) of Yum! Brands, which represents the difference between the Most Accurate estimate (55 cents) and the Zacks Consensus Estimate (54 cents), is +1.85%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Yum! Brands currently carries a Zacks Rank # 3 (Hold).
The combination of the stock's Zacks Rank #3 and +1.85% ESP makes us confident of an earnings beat this quarter.
What is Driving the Better Than Expected Earnings?
Yum! Brands' Chinese division, the largest contributor to its revenue stream, continues to be hurt by negative same-store sales growth since the recent past as the division has been struggling with the adverse media coverage on the quality of chicken supplied to China KFC and the outbreak of the H7N9 Avian flu in early-April.
However, the scenario seems to be improving slowly. The rate of decline has moderated, as evident from the 19% decline in comps in May which was much less than the 29% reduction reported in April.
Yum! expects to record positive same-store sales in the fourth quarter of 2013. The company has implemented several quality assurance programs, marketing campaigns and various promotional offers to boost its sales which should lead to better-than-expected earnings this quarter.
Apart from Yum!, another restaurateur McDonald's Corp. ( MCD ) also seems to be back on track in China.
Other Stocks to Consider
Other than Yum! Brands, we also see likely earnings beat coming from two companies this earnings season.
Buffalo Wild Wings Inc ( BWLD ): Earnings ESP of +2.56% and a Zacks Rank #2 (Buy).
Kraft Foods Group Inc. ( KRFT ): Earnings ESP of +5.97% and a Zacks Rank #2 (Buy).