Yum! Bottom Line Overcomes Other Issues (YUM)

Yum! Brands, Inc. (NYSE: YUM) is out with earnings that look outstanding. The owner of KFC, Taco Bell, and Pizza Hut posted $0.70 EPS and $2.78 billion in revenues.  Thomson Reuters had estimates pegged at $0.58 EPS on $2.79 billion in revenues.  Yum! also has raised its full 2009 EPS guidance from $2.10 to $2.14 per share to reflect 12% growth before special items.  The company maintains that this is on performance in China and a lower-than-expected full year effective tax rate.  The good news is the bottom-line, but there are still some metrics that might not be viewed too favorably right on the surface.

Trends are still tough for the company on the top-line.  It noted that system sales growth was +11% in mainland China and +4% in all international, offset by a 5% decline in the U.S…. this comes to flat worldwide sales and -4% after adjusting for currencies.  But bottom-line teh company said margin improved over 3 points by gains in China and the U.S.  Operating profits grew by 15%, which was from 32% in China and 18% in the U.S., but international profits fell 13% due to currency.  Growth was 19% in profits before currency.

The stock failed to participate in today’s rally as shares gave an unofficial close of up $0.01 at $34.86, but the after-hours session has shares trading up close to $36.00.  The food chain’s 52-week trading range is $21.50 to $36.96.

The good news is that the company is continuing to execute on the bottom line.  We might pay attention to some of these other metrics more in depth had the bottom line not come in so much higher than estimates.  When you consider that the firm recently added a share buyback program and boosted its dividend, it was probably in the bag that the quarter was not going to be too bad.

JON C. OGG