Bloomberg News

Yum Profit Rises as Sales Gain at KFC, Pizza Hut in China

July 13, 2011

(Updates with analyst’s comment in fourth paragraph.)

July 13 (Bloomberg) -- Yum! Brands Inc., owner of the KFC and Pizza Hut restaurant chains, said second-quarter profit gained 10 percent and boosted its earnings forecast for the year as customer traffic increased at restaurants in China.

Net income advanced to $316 million, or 65 cents a share, from $286 million, or 59 cents, a year earlier, the Louisville, Kentucky-based company said today in a statement. Profit excluding some items was 66 cents a share, topping the 61-cent average of 18 analysts’ estimates compiled by Bloomberg.

Yum, with more than 18,000 locations outside the U.S., said sales at stores in China open at least a year grew 18 percent. In April, Yum said it would buy Little Sheep Group Ltd., which has about 450 hot pot restaurants in mainland China. About one- third of the company’s revenue came from the nation last year.

“The fastest-growing segment of the Chinese population is that middle class and they’re making more money,” said Steve West, an analyst at Stifel Nicolaus & Co. in St. Louis who advises holding Yum shares. People like to eat at KFC and Pizza Hut because of their “cool, hip factor” in China, he said.

Yum opened 99 new restaurants in China during the quarter and has more than 4,000 KFC and Pizza Hut stores in the nation.

Earnings per share excluding some items will increase at least 12 percent this year, Yum said today. That’s up from a previous projection for a gain of at least 10 percent.

Yum rose $1.47, or 2.6 percent, to $57.05 at 5:08 p.m. in trading after the regular close of the New York Stock Exchange. The shares gained 13 percent this year through the close of regular trading today.

Commodity Costs

Yum, along with rivals Wendy’s Co. and McDonald’s Corp., has faced rising food prices in the past year. Yum said today commodity costs this year would rise as much as 7 percent in the U.S. and 9 percent in China. The company previously predicted prices would rise 6 percent in the U.S. and 7 percent in China for the full year.

Chief Executive Officer David Novak in January put Yum’s Long John Silver’s and A&W All-American Food restaurants up for sale to focus on its China business.

Revenue rose 9.4 percent to $2.82 billion in the quarter ended June 11. Yum has about 38,000 locations worldwide.

(Yum will hold a conference call tomorrow at 9:15 a.m. New York time. To listen, visit YUM US <Equity> EVT <GO>.)

--Editors: Kevin Orland, Robin Ajello

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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