Yum! Brands, Inc. (NYSE:YUM) Continues to Make Progress in China; 700 New Stores in China


Yum! Brands, Inc. (NYSE:YUM)’s CEO, Greg Creed, said during the conference call that it was making continued progress in China. The comments assumed importance in the wake of its Chinese division being impacted unfavorably by a meat scandal in the earlier quarters. The company also claimed that it was able to post a healthy margin in China. The CEO also expressed hope that it will be able to end the year on a strong note.

Addition of Stores

Yum! Brands, Inc. (NYSE:YUM)’s CEO said that it was on track to add a minimum of 700 new restaurants in China in the current year, providing strong returns. He was confident that it would lay the groundwork for future growth. The company already opened 171 stores in the first quarter. The comments suggested an increased level of confidence, bolstered by enhanced sales, as well as upward momentum in customer perceptions.

The company noted that China has recorded a healthy 19% margin, though it slipped 4.5 percentage points year-over-year. The chain of restaurants also suffered a 12% drop in same-store-sales, while system sales fell 6% in the first quarter. This has offset 8% unit growth. Currency also unfavorably impacted its results.

Full Year EPS Growth

Yum! Brands, Inc. (NYSE:YUM) expressed hope that it will be able to deliver a minimum of 10% growth in EPS for the full year. He cited two primary reasons for this confidence. One was the expected strong show in China in the second half and the other was the solid initiatives of brand-building at each of its segments.

The comments came on the back of a fall in EPS during the first quarter. Its net income dropped 9%, to $362 million, from $399 million, while earnings slipped 7%, to 81 cents a share, from 87 cents a share in the year-ago quarter. Excluding items, EPS would have fallen 8%, to 80 cents a share, in the March quarter. However, it came above the Wall Street analysts’ estimations of 72 cents a share.

Revenue

The top line of Yum! Brands, Inc. (NYSE:YUM) was $2.62 billion in the March quarter, down 3.7%, from $2.72 billion, in the previous year quarter. Revenue fell shy of the Street predictions of $2.65 billion.

The company’s KFC Division system sales grew 8%, fueled by a 2% unit uptick, as well as a 5% surge in same store sales. The company’s operating margin advanced 1.8 percentage points, to 26.3% in the March quarter. Its operating profit also rose by 11% in the first quarter.

Similarly, its another division, Pizza Hut, reported sales growth of 2%, fueled by 2% growth in unit. Its same store sales were flat, while operating margin fell 1.5 percentage points, to 30%. As a result, operating profit fell 2%. Overall, foreign currency impacted the operating profit by $20 million during the quarter.

The company bought back 2.6 million shares, for about $200 million, in the first quarter and ended the quarter with cash and cash equivalents of $675 million.

Outlook

Yum! Brands, Inc. (NYSE:YUM) expects to achieve a minimum of 10% EPS growth in the current year, 2015. This means it will deliver a minimum of $3.40 a share. Analysts estimate $3.45 a share for the same period.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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