Yum! Brands (YUM) Conf. Call Comments Suggest Sequential Improvement in China, RBC Capital Says

RBC Capital analyst David Palmer said comments from Yum! Brands' (NYSE: YUM) earnings call suggest sequential improvement in China.

"During this morning’s earnings call, management reiterated its 10% EPS growth target, despite 5pp of FX headwinds," Palmer commented. "In spite of more difficult comparisons, sales declines in China have continued to moderate in Q2 and the company noted that improvement in consumer metrics has been broad based. In addition, management spoke with conviction that it will surpass 2012 peak average unit volumes and that sales leverage combined with productivity initiatives will drive restaurant margins back above 20%. And though management guided China comps towards the low end of the 3% to 7% range, we believe consensus expectations prior to last night’s release fell within the 1% to 2% range."

He added, "In our view, Yum China’s sales recovery remains the most important factor for the stock. Better than expected 1Q sales trends and profitability indicate that the company is on the path to recovery. Our guess is that it will deliver meaningfully positive SSS growth in China beginning in 3Q. We recall that Yum China's 116% profit growth during 1H14 is an example of how a recovery period can look in 2H15 and 1H16. Furthermore, 1Q15 margins together with the profit recovery that took place in 1H14 leave us optimistic that the company can once again reach peak margins."

You May Also Be Interested In

• SAP Q1 results fall short of Wall Street estimates as transformation kicks off
• Lake Shore Bancorp (LSBK) Reports Q1 EPS of $0.17
• TrustCo Bank (TRST) Tops Q1 EPS by 4c