Yum! Brands (YUM) Tops Q2 EPS by 1c; China Comps Growth Inline with Views

Yum! Brands (NYSE: YUM) reported Q2 EPS of $0.75, $0.01 better than the analyst estimate of $0.74. Revenue for the quarter came in at $3.01 billion versus the consensus estimate of $3.07 billion.

China comps rose 3 percent, which was flat with expectations.

SECOND-QUARTER HIGHLIGHTS

• Opened 373 new restaurants worldwide; 72% of international development occurred in emerging markets.
• On track to finalize China separation with targeted completion date around October 31, 2016.
• Foreign currency translation negatively impacted operating profit by $16 million.

GREG CREED COMMENTS

Greg Creed, CEO, said “Yum! Brands delivered second-quarter core operating profit growth of 7% and EPS growth, excluding Special Items, of 9%. Given our strong first-half results and current trends in China, I’m pleased to raise our full-year core operating profit growth forecast to at least 14% from 12% previously. I’m particularly pleased with the continued sales momentum at KFC China, which delivered better-than-expected same-store sales growth of 3%. This represents our fourth-consecutive quarter of positive same-store sales growth at KFC China despite the second quarter being our most difficult of the year from a historical sales overlap standpoint. Importantly, our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining, including a return to positive same-store sales at Pizza Hut Casual Dining in recent weeks.

Outside of China, challenging industry conditions in the U.S. contributed to soft sales results. However, our three brand divisions in the aggregate delivered core operating profit growth largely in-line with our expectations and remain on track to deliver against their full-year core operating profit growth targets. We’re confident in our plans to drive second-half sales improvement led by a continued focus on innovation, value and our core products.

This is a transformational year for our company as we remain on track to finalize the separation of our China business with a targeted completion date around October 31, 2016, ultimately creating two powerful, independent, focused growth companies. Our capital structure is fully in place and we plan to return a significant amount of capital to shareholders both prior to and after the spin. I look forward to sharing additional details on the transformative initiatives we are undertaking as we become a more heavily franchised company at our New York investor conference on Tuesday, October 11th."

CHINA DIVISION

• China Division system sales increased 3%, excluding foreign currency translation.
  • Same-store sales were even, with an increase of 3% at KFC, offset by a decline of 11% at Pizza Hut Casual Dining.
• China Division opened 72 new units during the quarter.

• Operating profit was negatively impacted by an additional $14 million in closures and impairment expense versus prior year, as well as a $4 million expense related to our RGM convention. These expenses were partially offset by a benefit from recent value-added tax reform in China, which went into effect on May 1, 2016.
• Foreign currency translation negatively impacted operating profit by $7 million.
• Consistent with prior years, China Division's second quarter includes March, April and May results.

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

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