Bloomberg News

Yum Brands Profit Rises 7.3% as KFC, Pizza Hut Gain in China

October 04, 2011

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

Oct. 4 (Bloomberg) -- Yum! Brands Inc., owner of the Taco Bell and KFC restaurant chains, said third-quarter profit rose 7.3 percent as traffic improved at restaurants in China.

Net income climbed to $383 million, or 80 cents a share, from $357 million, or 74 cents, a year earlier, the Louisville, Kentucky-based company said today in a statement. Profit excluding some items was 83 cents a share, topping the 82-cent average of 18 analysts’ estimates compiled by Bloomberg.

Chief Executive Officer David Novak has sought to boost sales in China as its U.S. restaurants face increasing competition from rivals including McDonald’s Corp. and Burger King Holdings Inc. Last month, Yum sold its Long John Silver’s and A&W All-American Food brands to focus on the Asian nation, where it has about 4,100 KFC and Pizza Hut stores.

“KFC is a very, very powerful brand in China, and they’re just expanding,” Jack Russo, an analyst at Edward Jones & Co. in St. Louis, said in an interview. The company has had success there keeping restaurants open 24 hours a day, offering delivery service and selling breakfast items, he said. Russo advises holding the shares.

Sales at stores in China open at least 12 months grew 19 percent in the quarter, the company said. Analysts expected a gain of 14 percent, the average of five estimates compiled by Bloomberg. Same-store sales in China have outperformed U.S. restaurants for nine straight quarters.

Yum fell $1.43, or 2.9 percent, to $48.01 at 5 p.m. in trading after the close of the New York Stock Exchange. The shares were little changed this year through the close of regular trading today.

Profit Forecast

The company reaffirmed its forecast for 2011 profit growth of at least 12 percent. Last year, profit excluding certain items was $2.53 a share.

Same-store sales at Yum’s U.S. restaurants fell 3 percent in the quarter, wider than analysts’ average estimate for a 2.9 percent decline. U.S. comparable-store sales have slid for three quarters in a row.

Taco Bell lagged behind competitors McDonald’s, Subway, Burger King and Wendy’s Co. in U.S. market share among limited- service restaurants last year, according to Technomic Inc., a Chicago-based tracking firm. Taco Bell, which has more than 5,600 domestic locations, makes up about 60 percent of Yum’s U.S. operating profit, according to Sara Senatore, an analyst at Sanford C. Bernstein & Co. in New York.

Revenue advanced 14 percent to $3.27 billion in the quarter ended Sept 3. Analysts were expecting $3.09 billion.

Yum has about 37,900 locations worldwide, including more than 19,000 in the U.S.

(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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