Yum! Brands (YUM, Financial) shareholders finally found a reason to smile as the fast food giant came out with its fiscal 2013 fourth quarter earnings recently, putting up better than expected performance. The parent company of popular outlets such as KFC, Taco Bell and Pizza Hut has been struggling for sometime in China due to the concerns about the bird flu and in such a situation the improving margins and the 5% surge in the operating profit came as a respite. Let’s take a quick look at Yum!’s latest quarter and all that’s happening.
What was the quarter like?
Despite the 4% decline in the same-store sales in China and 2% decline of the same in the U.S., the company has bagged some very good numbers. Yum! reported a top-line of $4.18 billion, lower than the analyst expectations of $4.26 billion, but still higher than the $4.15 billion of the prior year period. The net profit for the quarter came to $321 million resulting in an EPS of $0.70, down from $337 million bottom-line of the year ago quarter.
However, the point to be noted is, this quarter had a non-recurring unusual item - $118 million loss resulting from the early extinguishment of debt of $550 million. Excluding the impact of this item, the EPS came to $0.86, much above the analyst expectations of $0.80. Thus, though the top-line came out lower than expected, the bottom line was more than able to compensate for the loss.
What’s going on?
Though the restaurant conglomerate continues to face stiff competition from peers such as McDonald’s (MCD, Financial), Burger King (BKW, Financial) and Wendy’s (WEN, Financial),it has shown great growth in the past few years during which it has opened several new outlets and has worked hard to improve its same store sales. Even in the recently concluded fiscal 2013, the company has added an astounding 1,952 locations, slightly less than what it had achieved in 2012.
The company has been displaying continuous progress, countering the bird flu issues as well as issues related to the poultry supply incident and it has taken necessary steps to strengthen its supply chain and has been working hard to rebuild the consumer trust in the KFC brand. Yum! is definitely not completely out of the troubles in China that continue to disturb its performance, but analysts are of the opinion that these troubles are only for the short-term and beyond those the company has a bright future with ample scope for growth, especially in the international markets. Even the management at Yum! is confident about the company’s ability to keep growing and expects to deliver a 20% earnings growth in 2014 and double-digit growth for the future years as well.
Concluding thoughts
With situations improving in China, which happens to be one of the largest markets for Yum!, accounting for more than 50% of the company’s revenue, the company seems to be well positioned. The management is on its toes and aggressively working to counter issues and deliver performance to the shareholders and quality and satisfaction to its customers. There are several positives about Yum!, such as the notable ROE that it has been providing and the rise in the stock price over the past years, which are believed to have much greater impact than all the present weaknesses and that’s why more and more analysts are putting up a “buy” rating for the stock. To cut the long discussion short, it seems Yum! is still yummy!
