World Business

Yum's profit slips but it's upbeat on China growth

(Agencies)
Updated: 2010-07-14 13:37

A KFC outlet in Chongqing. [Asianewsphoto]

The owner of the Taco Bell, Pizza Hut and KFC fast-food restaurant brands said Tuesday that its second-quarter profit fell slightly because a one-time gain a year ago outpaced its revenue growth.

Yum Brands Inc gave an upbeat forecast, citing ballooning growth in China, and raised its full-year outlook. But its shares fell in aftermarket trading when investors saw revenue was flat at Yum restaurants in the US that have been open at least a year.

There were "some whisper expectations" of higher sales at established restaurants in China, said Larry Miller, a restaurant analyst with RBC Capital Markets. The market's tepid reaction also might reflect disappointment in the company upgrading its full-year earnings projection by just 4 cents per share, from $2.39 to $2.43, he said.

Still, Miller said it was basically an "all-around good quarter" for the company. Analysts were expecting $2.42 per share for the current fiscal year.

Louisville-based Yum said it earned $286 million, or 59 cents per share, for the three months that ended June 12. That compares with $303 million, or 63 cents per share, a year earlier -- when it recorded a $68 million one-time gain for increasing and consolidating its stake in its KFC business in Shanghai in China.

Excluding such one-time items from both quarters, the company earned 58 cents per share for this year's second quarter, compared with 50 cents per share a year earlier.

Analysts expected the company to earn 54 cents per share in the most recent quarter on revenue of $2.54 billion.

Yum said its revenue rose 4 percent to $2.57 billion.

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The company, whose brands also include Long John Silver's and A&W All-American Food, operates more than 37,000 restaurants around the world.

The company's operating profit soared 33 percent in China, where it opened 59 new restaurants during the quarter, for a total of 155 so far this year. Sales there grew 15 percent while sales at restaurants open at least a year -- a key barometer for restaurant performance -- rose 4 percent.

"The China business is firing on all cylinders," said Yum spokesman Jonathan Blum.

Across Yum's US business, its operating profit rose 10 percent as commodity costs fell and revenue rose at Pizza Hut and Taco Bell, offset by a decline at KFC.

Pizza Hut -- where revenue at restaurants open at least a year rose 8 percent -- benefited from a $10 pizza promotion.

"It's certainly not as profitable as selling high-priced pizzas, but they're selling a lot of them," Miller said.

Taco Bell posted a 1 percent boost in the key revenue figure, while it fell 7 percent at KFC.

Net income in the international division, which doesn't include China, rose 7 percent, adjusted for currency fluctuations. And revenue at restaurants open at least a year edged up 1 percent.

Yum Chairman and CEO David C. Novak predicted that Yum will open about 1,400 international units this year, consistent with the pace of restaurant openings in the past five years.

Yum expects to open some 475 restaurants in China this year, plus about 1,000 more in its separate international division, Blum said.

The shares fell $1.31, or 3.1 percent, to $40.40 in after-hours trading.