Investing in China continues to pay off for Yum! Brands

Yum! Brands Inc., New York symbol YUM, operates 38,000 fast-food restaurants in over 110 countries. Its main banners include KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). Yum is also a leader in investing in China. It was the first fast-food company to enter the country, in 1987. We analyze Yum in Wall Street Stock Forecaster, our newsletter for investing in the U.S. markets. In the three months ended June 11, 2011, Yum’s revenue rose 9.4%, to $2.8 billion from $2.6 billion a year earlier. Earnings rose 10.5%, to $316 million, or $0.65 a share, from $286 million, or $0.59 a share. Excluding unusual items, mostly gains and losses on sales of restaurants to franchisees, earnings per share would have risen 13.8%, to $0.66 from $0.58. That beat the consensus estimate of $0.61 a share. Investing in China continues to be a major part of Yum’s growth strategy. China now accounts for 42% of Yum’s sales, and 40% of its earnings. In the latest quarter, same-store sales in China rose 18%. Same-store sales at Yum’s other international locations rose 2%, and U.S. same-store sales fell 4%. As well, the U.S. division’s profits fell 28%, due to higher prices for ingredients, including wheat, corn and beef. In addition, legal costs to fight allegations that the company’s Taco Bell chain used lower-quality beef further weighed on the U.S. division’s profits. We updated our advice on Yum in our July 15, 2011 Wall Street Stock Forecaster hotline, which you can immediately view when you take a 1-month free trial to Wall Street Stock Forecaster. Click here to get started right away. (Note: If you are a current Wall Street Stock Forecaster subscriber, please click here to view Pat’s recommendation. Be sure to log in first.)

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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