Yum! Brands Inc.YUM posted mixed fourth-quarter and full-year 2015 results, with earnings surpassing the Zacks Consensus Estimate but revenues missing the same.
Adjusted earnings per share of 68 cents beat the Zacks Consensus Estimate of 66 cents by approximately 3%. Further, earnings increased 11% year over year owing to higher margins.
Adjusted earnings per share excludes certain charges for the refranchising of international markets, U.S. refranchising gains and charges associated with the KFC U.S. franchisees deal.
Meanwhile, total revenue of $3.95 billion declined 1.2% year over year due to lower company sales. Revenues also missed the Zacks Consensus Estimate of $3.997 billion by 1.2%.
Yum! Brands currently reports under five segments - China, India, KFC, Pizza Hut and Taco Bell.
China division's comps increased 2%, same as the last quarter. In the year-ago period, comps declined 16%. The improvement was mainly backed by an increase of 6% at KFC, partially offset by a decline of 8% at Pizza Hut Casual Dining.
Comps at the India division declined 13%, narrower than an 18% drop in the last quarter.
The KFC division comprises all the KFC restaurants, except the ones under the China and India segments. Comps at this division were up 3%. The improvement reflects comps increase in most of the international - emerging (2%) and developed markets (3%) - as well as 3% rise in the U.S. However, comps growth was lower than 4% growth in the year-ago quarter but same as the previous quarter.
Comps at Pizza Hut (excluding China and India) increased 1%, similar to the year-ago quarter. In the last quarter, comps remained flat. Comps grew 3% in the emerging markets, 2% in the U.S. but declined 1% in the developed markets.
Taco Bell's results only exclude the India division figures. Comps at this segment were up 4% year over year. The upside reflects comps growth in the domestic market driven by strong breakfast sales. Comps growth remained flat with the prior-quarter level. However, comps growth was lower than the 6% growth a year ago.
Yum! Brands witnessed a 13.1% drop in total expenses, while company-restaurant expenses declined 5.1% year over year. Worldwide restaurant margin increased 340 basis points year over year to 13.6%. Margin improvements in China, KFC and Pizza Hut divisions were partly offset by decline in the Taco Bell division.
Adjusted earnings were $3.18 per share, up 2.9% from 2014.
Revenues were $13.10 billion, down 1.3% year over year.
Management expects 10% operating profit growth (in constant currency) in 2016.
Although the China division has posted positive comps in the past two quarters, complete recovery will take time. The economic growth rate of the country has moderated lately, making consumers cautious about their discretionary spending. This would restrain the sales momentum at Yum! Brands' China division. Further, the increasing preference for healthy and nutritious food among U.S. consumers, along with intense competition, is denting the company's domestic sales.
However, the company's efforts to capitalize on high-growth emerging markets like Russia, Southeast Asia, and Africa for future growth could partially mitigate these headwinds.
Yum! Brands has a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked restaurant stocks are Carrols Restaurant Group, Inc. TAST , Darden Restaurants, Inc. DRI and Dave & Buster's Entertainment, Inc. PLAY . Each of these stocks sport a Zacks Rank #1 (Strong Buy).
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