Yum! Earnings on Deck: Next McDonald's, or Troubled Growth? (YUM, MCD)

Yum! Brands Inc. (NYSE: YUM) is set to report earnings after the close of trading today. Analysts surveyed by Thomson Reuters expect earnings of $0.45 EPS on $3.38 billion in revenue.  We have noted before how Yum! may have an ultimate aim of surpassing McDonald’s Corp. (NYSE: MCD) as the largest fast food chain globally.

Rstimates for next quarter are $0.43 EPS and$2.38 billion in revenue and Fiscal DEC-2009 estimates are $2.08 EPSon $11.27 billion in revenue.  The company expects 10% earnings growth annually, and its market cap is almost$13 billion today.

The company has been trying to make quality changes.  It has madeimprovements in Taco Bell and reduced the trans fats at KFC. Moreover, Yum has started offering more natural productsand a pasta menu at Pizza Hut.  Don’t expect anorganic offering any time soon, but the company has been trying to makechanges here where it can.  The bad news is that it made the move tobetter quality as cash-strapped consumers began to worry more about price.

Yum! definitely offers a "value" for families in a pinch today.  Italso has many brand loyalists.  But it has had problems with costcontrol for much of 2008, and now we presume thatit will have some issues on the US Dollar front as so many companieshave.  The good news is that at least it has no worries with China’s currency, where it has spent so much effort growing.

McDonald’s Corp. (NYSE: MCD) has a market cap of almost $65 billion.  If the 2009 estimates are accurate, the stocktrades at just over 15-times the $3.84 consensus and around 2.85-times revenuefrom the First Call targets for fiscal Dec-2009.  For the same 2009period, Yum trades at 13.5-times First Call targets of $2.08 EPS and1.15-times revenue.  McDonald’s has some 31,000 localrestaurants in over 100 countries. Yum has almost 36,000 restaurants in more than 110 countries.Keep in mind that franchises and company-owned stores may skew thenumbers of each company.

Ahead of earnings, Yum is up almost 1% at $27.84 and its 52-week trading range is $21.50 to $41.73.  So shares are down about 30% from highs.

Jon C. Ogg
February 3, 2009