Yum! Brands Company Earnings Report Lives Up to Promises of China Turnaround

Investing

Published: July 10, 2013 4:36 pm

Last Updated: July 11, 2013 6:18 am

Yum! Brands Inc. (NYSE: YUM) has reported adjusted earnings of $0.56 per share for its second quarter, with worldwide operating profits down 20% and its global margin down 2.7 points to 12.5%. With all the negative news out of China where KFC is dominant, the same-store sales in that country were down by a sharp 20% , total sales in China were down by 12%, and its operating profit down 63% locally in China. This all sounds bad, but due to the company maintaining that sales are recovering in China the stock is actually higher on the news.

Thomson Reuters was calling for Yum! to report earnings of $0.54 per share and the earnings a year ago were reported as $0.67 per share. Even though the $0.56 in earnings per share is way down, it is better than what Wall Street was expecting from Yum!

What has been hard to understand is how Yum! shares managed to hold up even throughout the negative news. With all of the negative media the company had keeping Chinese consumers away, things could have been much worse. Even after closing down 0.4% at $72.36 on Wednesday the stock is barely $2 lower than its 52-week high. Here are some key snippets from the release:

“KFC China Sales Recovering as Expected”
June same-store sales declined an estimated 10% for the China Division, improving from a 19% decline in May.
Full 2013 Guidance: estimated mid-single-digit full-year EPS decline versus prior year.
“For the total China Division, we remain on track to open at least 700 new units this year.”
U.S. same-store sales rose 1% in total: 2% growth at Taco Bell and 3% growth at KFC, but declined 2% at Pizza Hut.

Yum! shares were up as much as 2% after the news and the after-hours action after the dust has settled had shares up 0.6% at $72.80 in the after-hours about 15 minutes after the earnings report.

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