Jefferies Cuts PT on Yum! Brands (YUM); Visibility Remaints Limited, See Seeing China Pressure
Analyst Andy Barish noted that top-line visibility in Yum! remains limited. He said,
YUM is seeing broad-based weakness across China, which it continues to believe is a function of lingering quality concerns. Brand/supply chain efforts so far have not gained traction, and the Sep intro of beef product drove mix, but not incremental traffic. 4Q SSS will not be positive but YUM does expect continued improvements going forward (note easy Dec compare).
From the company's quarterly call, Barish said food and labor costs won't be favorable moving forward, but
modest price in ’14 (1% rolls off in 4Q) and continued labor efforts (more P/T workers, manage wage inflation) will help offset costs.Operating efficiencies and strong management should be able to drive China back to about $1 billion of profitability in FY14. For the U.S. and YRI, long-term growth targets are expected to trend in-line with prior views. Baring noted that U.S.
refranchising is complete, and we see margins supported by SSS momentum (TB breakfast in 1H, PH wings national TV in 1Q).
The firm sees Yum! at EPS of $2.90 in FY13 and $3.50 in FY14, versus prior guidance of $3.03 and $3.70, respectively.
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Shares of Yum! Brands closed at $66.48 yesterday, with a 52 week range of $59.68-$75.13.