Restaurant operator Yum Brands posts 7 percent growth in 3Q profit as revenue surges overseas

Tuesday, October 5, 2010

Yum Brands post 7 percent gain in 3Q profit

LOUISVILLE, Ky. — Yum Brands Inc., owner of the Pizza Hut, Taco Bell and KFC fast-food brands, said Tuesday that its third-quarter profit grew 7 percent on surging overseas sales that offset a slight downturn in U.S. operations.

Buoyed by its performance, Yum raised its forecast for full-year earnings to $2.48 per share from $2.43 per share.

Yum shares fell 20 cents in aftermarket trading to $46.60, after the company said its U.S. operating profit fell 2 percent, dragged down in part by sluggish sales at KFC.

Yum said Tuesday that its net income was $357 million, or 74 cents per share, for the three months ending Sept. 4. That compares with $334 million, or 69 cents per share, a year earlier.

Revenue rose 3 percent to $2.86 billion, it said.

The results were slightly better than analysts polled by Thomson Reuters expected. On average, they expected Yum to earn 72 cents per share in the most recent quarter on revenue of $2.87 billion. Analysts typically exclude one-time items from their earnings estimates. On that basis, Yum earned 73 cents per share.

The Louisville-based company said operating profit in its key China operations grew 23 percent, adjusted for currency fluctuations. Sales at restaurants open at least a year — a key barometer for restaurant performance — rose 6 percent in China. Yum opened 90 restaurants in China during the quarter, for a total so far this year of 245.

Yum said operating profit included a one-time benefit of about $10 million from its participation in a world exposition in Shanghai. It expects labor and commodity inflation to hurt restaurant margins in the fourth quarter, but the company predicted better margins for the full year.

In the international division, which doesn’t include China, operating profit rose 16 percent, also adjusted for currency fluctuations. Same-store sales grew 1 percent in the division, which opened 194 restaurants in the quarter.

“A key driver of our overall growth continues to be new unit development” in China and the international division, Chairman and CEO David C. Novak said in a prepared statement.

Across U.S. operations, third-quarter revenue at restaurants open at least a year also grew, though by only 1 percent because of the drop at KFC. At Pizza Hut, the figure rose 8 percent, while it rose 3 percent at Taco Bell. At KFC, it fell 8 percent.

Novak said the company expects U.S. sales to keep improving in the fourth quarter.

Meanwhile, Yum said it has sold 98 restaurants so far this year as part of a refranchising push in its U.S. businesses, mainly Pizza Hut and KFC. Since it began in late 2007, the company has sold more than 1,300 restaurants across its brands. Yum said it expects to complete the initiative in 2011.

The company’s other brands include Long John Silver’s and A&W All-American Food. Yum operates more than 37,000 restaurants around the world.

Yum shares rose 38 cents Tuesday, less than 1 percent, to close regular trading at $46.80 before the company reported on its earnings.

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