AP News

Yum gains from rebounding performance in China


LOUISVILLE, Ky. (AP) — For the owner of the Taco Bell, Pizza Hut and KFC chains, it was a profitable combo — higher demand in the U.S. and a quick turnaround in its fast-growing China division.

Yum Brands Inc. said Tuesday the result was a 23 percent increase in its third-quarter net income.

The Louisville, Ky., company also raised its earnings guidance for the year. Shares rose about 4 percent in after-hours trading.

Operating profit in China rose 22 percent, when adjusted for currency fluctuations. Yum's costs for ingredients and workers didn't rise as fast as they had in the second quarter, when operating profit dropped. The profit decline had been a rare event for Yum's key China division.

Yum said the quick rebound showed its resilience in its most important overseas market.

"In China, our category-leading brands and competitive positions are stronger than ever," said Yum Chairman and CEO David C. Novak in a statement.

The company also upped its record pace of new restaurant in China, opening 192 locations. It now expects to open at least 750 stores this year, up from its prior forecast of at least 700 new restaurants.

In August the company opened its 4,000th KFC in China. Yum has ramped up its breakfast offerings, 24-hour operations and delivery services at more KFC stores in China.

Pizza Hut has a growing presence there, too.

In the U.S., operating profit rose 13 percent in the quarter. A new, upscale menu at Taco Bell created by celebrity chef Lorena Garcia helped lift sales in restaurants open at least a year by 7 percent for the Mexican chain.

That same-store sales figure is key for retailers because it excludes new and closing stores. It rose 6 percent at Pizza Hut and 4 percent at KFC.

"Our heightened operations focus and product innovation has driven much better performance in the U.S.," Novak said.

Operating profit in Yum's international division, which excludes China and India, rose 14 percent when stripping out changes in currency values. Companies that do business overseas take a hit when the dollar increases against foreign currencies.

The international division opened 181 new restaurants in 46 countries during the quarter.

Yum said it expects to open at least 1,750 new restaurants outside the U.S. this year, which would be a record. Overseas expansion has become an important ingredient in Yum's profit formula.

Overall Yum reported net income of $471 million, or $1 per share, in the three months ended Sept. 8, up from $383 million, or 80 cents per share, a year ago.

Excluding one-time items, Yum's earnings were 99 cents per share for the quarter. Revenue rose 9 percent to $3.57 billion from $3.27 billion.

Analysts polled by FactSet expected earnings of 97 cents per share on revenue of $3.66 billion.

The company now expects profit of at least $3.24 per share for the year, excluding special items, up from its prior forecast of at least $3.22 per share. Analysts polled by FactSet predict profit of $3.27 per share.

Shares rose $2.75, or 4.2 percent, to $68.79 in after-hours trading. In the regular session, shares closed down 90 cents at $66.04.


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