Yum! Brands Inc. (YUM: 40.86 -0.64 -1.54%) reported its second-quarter 2010 adjusted earnings of 58 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 54 cents. The earnings increased 17% year over year mainly on the back of strong performances in its China division.On a reported basis, Yum! Brands’ quarterly earnings were 59 cents per share, which declined 6% year over year. In the comparable quarter last year, earnings benefited from a one-time gain of $68 million related to the acquisition of a stake in the operating body that owned the KFC business in Shanghai, China.
Lower company restaurant costs, which were down 23% in China and 4% in Yum! Restaurants International (YRI), and lower General and Administrative (G&A) expenses (down 12% in China and 6% in YRI) resulted in operating profit growth in both China (up 33%) and the YRI (up 21%; and up 7% excluding foreign currency translation) divisions. These were partially offset by a 14% increase in the company restaurant costs and 2% rise in G&A expenses leading to an overall operating profit growth of 7% year over year.
Comparable-restaurant sales increased 4% in mainland China. However, comparable-restaurant sales nudged up 1% in the international markets and remained flat in the U.S. The even result in the U.S. comprised an 8% increase in Pizza Hut and a 2% rise at Taco Bell, which was offset by a 7% decline at KFC. Yum! Brands’ total revenue rose 3% to $2.2 billion, stemming from a 23% growth in the China division and 4% growth in YRI, somewhat offset by a 12% fall in the U.S. division.
Robust performance in the China division during the quarter was primarily driven by a 12% new unit growth. The company has strengthened its position in China by adding 59 new restaurants during the second quarter, bringing the total to more than 3,500 restaurants in the country. Further, Yum! Brands solidified its footprint internationally by opening 175 new units in more than 50 countries, out of which 89% was with its franchisees.
Guidance
Management expects its fiscal 2010 adjusted earnings to remain in the range of $2.39 to $2.43 per share based on solid performance in the first half. This implies 12% annualized earnings growth in contrast to Yum! Brands’ annual target of at least 10%. However, in the second half of 2010, Yum! Brands expects labor and commodity inflation to scale up in its China division, which accounts for around 35% of the company’s profit.
Yum! Brands expects to open about 1,400 international units in fiscal 2010, which will make it the industry’s leading international new unit developer. The new unit development will mostly take place in China and YRI division.
Going forward, Yum! Brands will continue to re-franchise significant portions of its U.S. operations, and expects to complete initiatives during 2011.
FinancialsAt the end of the second quarter, Yum! Brands had cash and cash equivalents of $530 million with long-term debt of $2.5 billion, and shareholder equity of $1.2 billion. Yum! Brands bought back 2.8 million shares in the quarter at an average price of $40 per share, aggregating $115 million.
We believe Yum! Brands is on track to achieve its annual earnings per share growth target of at least 10% through unit development, comparable-store sales growth, restaurant operating margin expansion, and share repurchases. The company’s overseas expansion as well as brand recognition and consistent performance also provide it an edge over its competitors.
However, stiff competition from other quick-service restaurant operators, currency fluctuation and macroeconomic factors influencing consumer spending still remain concerns for the company. We currently have a short-term Hold rating on Yum! Brands.
Yum! Brands’ close competitor McDonald’s Corp. (MCD: 70.67 -0.17 -0.24%) is slated to release its fiscal 2010 second quarter earnings on July 23, 2010.
No comments:
Post a Comment