Bloomberg News

Yum Profit Trails Estimates as Costs Increase in China

July 18, 2012

Yum Profit Trails Estimates as Wage Costs Increase in China

Yum! Brands Inc., which has more than 4,600 locations in China, is facing higher costs for workers and raw materials amid plans to open at least 700 restaurants in the nation this year. Photographer: Nelson Ching/Bloomberg

Yum! Brands Inc. (YUM:US), owner of the KFC and Taco Bell restaurant brands, said second-quarter profit rose 4.7 percent, falling short of analysts’ projections, as costs increased at locations in China.

Net income (YUM:US) rose to $331 million, or 69 cents a share, from $316 million, or 65 cents, a year earlier, the Louisville, Kentucky-based company said today in a statement. Profit excluding certain items was 67 cents a share. Analysts projected (YUM:US) 70 cents, the average of 22 estimates compiled by Bloomberg.

Yum, which has more than 4,600 locations in China, is facing higher costs for workers and raw materials amid plans to open at least 700 restaurants in the nation this year. Wage rate inflation in China was 13 percent in the quarter and commodity inflation was 6 percent, reducing profit margins.

“Though it’s not doing as well as it was, China is still good,” Jack Russo, an analyst for Edward Jones & Co., said in a telephone interview. “Economic growth might be slowing in China, but the company is going to forge ahead, continue to grow its units and take market share.”

Russo, who is based in St. Louis, Missouri, recommends holding the shares.

Commodity inflation is expected to ease in the second half of this year, and the company will leverage its pricing power to offset these losses, Peter Saleh, an analyst for Telsey Advisory Group, said in a telephone interview.

Yum fell 3.6 percent to $63.22 at 4:26 p.m. in New York. The shares (YUM:US) had gained 11 percent this year through the close of regular trading today.

The company reiterated its forecast for profit excluding certain items to increase at least 12 percent this year to about $3.22 a share. Analysts estimate $3.31, on average.

To contact the reporters on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net; Kelly Blessing in New York at kblessing@bloomberg.net

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


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Companies Mentioned

  • YUM
    (Yum! Brands Inc)
    • $72.26 USD
    • -0.05
    • -0.07%
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