Yum! Brands (YUM) has been struggling ever since the avian flu incident damaged its reputation in China; however, the company is making a comeback. Sales in China are recovering, and this has contributed a lot to Yum’s revenue. The company should keep getting better from now; thus, it’s a good buy at present valuations.
Yum! Brands beat the consensus estimates with its first-quarter net income rising by 18% to $339 million for fiscal 2014. The EPS rose 24% to $0.87, a bit more than the average analyst estimate of $0.84. The total revenue grew 7% to $2.72 billion, falling short of the consensus estimates of $2.79 billion. The current share prices climbed 4.5%, and the company had an increase of 4% in its system sales. The restaurant margin grew by 3.3% to 19.2%.
The company’s China division, which accounts for almost half of the total business of Yum! Brands, has been playing a very crucial part in the expansion of business. In China, total sales increased 17%, conclusive of a 9% gain in comparable sales and the opening of 123 new units in the first quarter. The operating profit grew by 80% with KFC registering same-store sales growth of 11% in the quarter. With KFC and Pizza Hut producing great sales, the restaurant margin also increased 6.8 percentage points to 23.4%.
Yum! Brands took off with a great start this year. It combined Yum! Restaurant International and the U.S. divisions into three of its major brand segments, namely; KFC, Pizza Hut and Taco Bell. This strategy is believed to come handy when the company’s concern is to accelerate its growth, globally. Pizza Hut locations in the country saw an 8% rise in comparable sales from the same quarter last year. Yum now has close to 6,300 locations in China, with the majority of them being KFC restaurants.
Yum! Brands' Taco Bell launched its new breakfast menu, making a gateway for a future success. It is confidently believed that, with its latest breakfast items like burritos, waffle wraps and cinnabon delights, Taco Bell will attract more and more customers. If with this breakfast menu, Taco Bell achieves a type of success that it did with its Doritos Locos Tacos, which were a huge hit among customers, its sales are likely to increase.
The launch of an exciting new menu at KFC, in about 4,600 restaurants in more than 950 cities across China, has only added to the expanding business. It has been the first time that a company introduced 15 products simultaneously. KFC also plans to upgrade its menu, twice a year. This initiative strengthened KFC’s dominance over its main product platforms viz. sandwiches, rice dishes, snacks as well as drinks and desserts.
Yum! Brands, seems to have recovered fully from the loss caused by the avian flu. The company’s revenue and earnings growth are expected to rise sharply in fiscal 2014, which is highly observable from the first-quarter results. On the basis of previous-quarter results and the ongoing sales trends, the company expects 20% EPS growth during the year. Investors who seek growth in the restaurant industry have nothing but to opt for Yum! Brands.