Issues in China Still Weighing on Yum!

Greg Creed, who will become CEO effective January 1, 2015, commented on the growth in earnings per share:

We are firmly committed to returning to double-digit EPS growth in 2015, delivering at least 10% growth with the potential to do significantly better. We fully expect to bounce-back in China and benefit from tremendous sales leverage as sales rebound. We have solid plans to drive same-store sales growth and margin improvement in China, while continuing to open new restaurants with confidence in the world’s fastest-growing economy.

Also, the sustained momentum of KFC and Taco Bell, along with the recent relaunch of Pizza Hut is also expected to play into the growth that the company is expecting. The company expects to build on the strength of these brands to help drive future growth in the years ahead.

Mr Creed would go on to say:

Overall, we expect to open over 2,100 new international restaurants next year, further strengthening our lead in emerging markets. We remain focused on the three keys to driving shareholder value: same-store sales growth, new-unit development and generating high returns on invested capital. I’m confident we’ll deliver full-year EPS growth of at least 10% in 2015 and produce consistent double-digit EPS growth over the long term.

However, analysts did not see eye to eye with Mr. Creed as there was a consensus estimate of $3.78, or roughly 16.6% growth expected in earnings compared to the 10% that he was proposing. The consensus estimate for the 2014 full year from analysts was $3.24 which predicts a 9% growth in earnings from 2013, this is also above what Yum had estimated.

The 2015 guidance for Yum is based on the following expectations and assumptions:

• China Division operating profit growth of at least 15%
• KFC Division operating profit growth of 10%
• Pizza Hut Division operating profit growth of 10%
• Taco Bell Division operating profit growth of 6%
• Over 2,100 gross new international units, including: 700 new units in China

As a result of the company’s estimates not being in line with analysts’ estimates, there was some fall out in the post market as shares were down roughly 4% to $72.25 following the announcement. The stock has a consensus analyst price target of $79.53 and a 52-week trading range of $65.81 to $83.58. It has a market cap of nearly $33 billion.