Yum! Brands, Inc. (YUM) Misses Q2 EPS by 1c; Reports China System Sales Growth of 21%

Yum! Brands, Inc. (NYSE: YUM) reported Q2 EPS of $0.73, $0.01 worse than the analyst estimate of $0.74. Revenue for the quarter came in at $3.2 million versus the consensus estimate of $3.25 million.

Worldwide system sales grew 6%. Worldwide restaurant margin increased 3.0 percentage points to 15.5%, and worldwide operating profit increased 34%.

CHINA DIVISION

Our new reporting structure does not impact the China Division. For the full year 2013, China Division contributed 35% of Yum!’s total operating profit.

• China Division system sales increased 21%, prior to foreign currency translation.
  • System sales grew 25% for KFC and 16% for Pizza Hut Casual Dining.
  • Same-store sales grew 15%, including growth of 21% at KFC. Pizza Hut Casual Dining same-store sales were even.
• China Division opened 104 new units during the quarter.

• Restaurant margin increased 6.2 percentage points to 16.8%, driven by sales leverage and restaurant operating efficiencies. Excluding the impact of Little Sheep, restaurant margin would have been 17.4%.
• Foreign currency translation negatively impacted operating profit by $1 million.

David C. Novak, Chairman and CEO said, “Yum! Brands is well on its way to delivering full-year EPS growth of at least 20%, with second-quarter EPS growth of 30%. Operating profit grew 188% in China driven by strong sales and margin performance. Just as important, I’m confident we are building momentum behind major initiatives around the world that will sustain double-digit EPS growth in 2015 and beyond.

China Division system sales increased 21% as we opened 104 new restaurants and delivered same-store sales growth of 15%. Restaurant margins were 16.8%, which was 6.2 percentage points above prior year. We are especially pleased with the initial success of our KFC Menu Revamp and excited about our plans balance of year. Overall, we remain on track to open at least 700 new restaurants in China as we further capitalize on the world’s largest and fastest growing consuming class.

Outside of China, we expect to open a record 1,250 new international units this year, further strengthening our leadership position in emerging markets. We also delivered solid sales and profit growth at our KFC division, led by strong international performance. At Taco Bell, we’re very pleased with the initial results of our national breakfast launch and have a strong new product pipeline across all day-parts to drive a strong second half. At Pizza Hut, although second-quarter results were disappointing, we are taking significant actions in our U.S. business to reignite sales and expect to make substantial progress balance of year.

Overall, we have a compelling business model and will continue to invest behind the significant growth opportunities we see around the world. We remain focused on the three keys to driving shareholder value: new-unit development, same-store sales growth and generating high returns on invested capital.”

For earnings history and earnings-related data on Yum! Brands, Inc. (YUM) click here.

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