Rebound in China propels Yum!

by Monica Watrous
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LOUISVILLE, Ky. — Yum! Brands Inc. remains confident in achieving its full-year target of at least 20 percent earnings per share growth. During the company’s second quarter, KFC sales in China rebounded from last year’s spate of negative publicity and effects of avian influenza. In addition, initial results of Taco Bell’s breakfast launch were positive, driving same-store sales growth of 2 percent in the United States. But Pizza Hut's performance continued to disappoint.

Commodity inflation and other factors dragged on the Taco Bell division's operating profit.

“At Pizza Hut, although second-quarter results were disappointing, we are taking significant actions in our US business to reignite sales and expect to make substantial progress balance of year,” said David Novak, chairman and CEO.

Three keys to improving shareholder value at Yum! include new-unit development, same-store sales growth, and generating high returns on invested capital. During the quarter, the company opened a total of 298 new international units, 78 percent of which were in emerging markets, and achieved worldwide system sales growth of 6 percent.

For the second quarter ended June 14, Yum! earned $334 million, equal to 75 cents per share on the common stock, up 19 percent from $281 million, or 62 cents per share, in the prior-year period.

Revenues totaled $3,204 million, up 10 percent from $2,904 million.

KFC sales in China rebounded. Operating profit soared to $194 million.

 
Operating profit for the KFC division increased 7 percent to $155 million, and revenues climbed 7 percent to $754 million, reflecting strength in international markets that offset a 2 percent decline in US same-store sales.

In the Pizza Hut division, operating profit fell 22 percent to $63 million. Revenues dropped 1 percent to $265 million. International same-store sales moderated in emerging markets and declined 2 percent in developed markets, while US same-store sales fell 4 percent.

The Taco Bell division posted a 2 percent decline in operating profit to $109 million, driven by commodity inflation, investments in breakfast and sales deleverage in other day parts. Revenues dropped 3 percent to $439 million.

In China, operating profit soared 188 percent to $194 million, and revenues advanced 18 percent to $1,709 million. The India division reported operating loss of $1 million, up from a loss of $4 million in the prior year, and $37 million in total revenues, up 12 percent from the comparable quarter.

For the first half of the year, Yum! had net income of $733 million, equal to $1.64 per share on the common stock, up 19 percent from $618 million, or $1.36 per share.

Revenues for the six-month period totaled $5,928 million, up 9 percent from $5,439 million.

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