Yum! Brands (YUM, Financial)Â is a QSR (quick service restaurant) that has been expanding its footprints globally and is constantly working on its marketing strategies to influence its top and bottom lines. The company is taking marketing initiatives to promote its menu nationally. It is taking up a re-imaging plan and focusing on a food-centric approach. This program is a sales growth driver and cost effective, and the company expects to earn a higher return on investment. At the same time, it continues to expand its franchisees and is focusing on its long-term strategic initiatives to drive growth. The company thinks that this business model will help it develop a strong brand image and save the energy spent in its day to day operations.
Financials
Yum! Brands, recently released its Q3-2014 results. It reported revenue of $3.354 billion, down by 3% year over year as compared to $3.466 billion in the same quarter last year. Franchise and license revenue was up 4% year over year, signifying the deeper penetration of the company. Operating profits were up by 57% year over year, it recorded $550 million as compared to $350 million in the same quarter last year while the net income grew by 166% year over year to a record $404 million.
Yum! Brands gets the major percentage of its operating profits from China (around 34%), which was still facing the residual effect of the poultry supply incident, and thereafter, was affected by avian flu. The sales are also affected by some negative publicity pertaining to improper food supply. The company is confident to bounce back in China and has further opened 125 new outlets in china which will leverage its future growth.
Its operations in India which again is a raw market are improving the performance of YUM; sales increased by 14% and 24% unit growth. As the Indian market matures for YUM, the operating loss also seems to be reducing for the company; it currently records $3.0 million, which improved by $1.0 million.
The company is expected to perform better in the coming quarters of 2014 as it focuses on marketing and more product launches.
Business prospects
The efforts of the company in the fiscal 2013 enable the company to bounce back in 2014. The company expects at least growth of 20% on the EPS and consistent double-digit growth in EPS in years to come.
The company is also optimistic about its Chinese market growth which has not been performing well due to various reasons like epidemic viral being the main cause. The progress that Yum is making in Chinese market they are confident to bounce back in 2014 making a healthier top and bottom line of the company. The confidence about its performance is based on the fact that Yum! had taken various measures to strengthen its KFC business in China, and expect to reap the benefit in this year and future. Measure like food safety and stronger poultry supply chains are the major steps that Yum! has undertaken to have a strong hold of the market and drive in more traffic to KFC.
Strategic moves
New organization structure to stay focused on various regions, and this will always have an impact on the ongoing and future growth.
This year, Yum! combined restaurants international and the U.S. division into three global brands divisions, KFC, Pizza Hut and Taco Bell. China and India will remain separate entities which can help the company focus in this area with independent policies for these regions. The main objective of this new structure is to establish a higher brand values and more aggressive global growth. Both India and China contribute heavily to the total contribution of the revenues for Yum.
Journey ahead
The outlook of the company for 2014 successive quarters is very positive under its new model. Operating profit of KFC is anticipated to grow at 6%, Pizza Hut by 8% and Taco Bell to increase by 6%. On combining the growth of all three restructured segments, it is expected to rise by 15% in China. It also anticipates 10% growth in the EPS with fair contingency.
The company continues to deliver strong performance with its other brands like Pizza Hut, Taco Bell and its U.S. restaurant casual dining business. The company is committed to long-term growth and is targeting new KFC units in China and India.
The good news is that Yum! is bouncing back in China, and the business is recovering. The business growth in China means it now expects a positive same-store sales growth in the region in future.
The company is taking up extensive advertisement featuring protein alternatives available at KFC stores like shrimp and mushroom rolls. The company is popularizing its new products like salads, flatbread sandwiches, and boneless chicken to attract younger and up market clientele.
Competitor
One of the leading competitors of Yum! is McDonald’s (MCD, Financial) and is battling to acquire a bigger bite of the market share. McDonald's is also focused onspreading its network globally. Not only India and Asia but McDonald's also opened new branches in various other countries Vietnam and is seeking to take advantage of the growing middle class there. McDonald’s plans to open 1,200 to 1,300 new branches, and it would be spending an enormous $3 billion on this exercise. From an investment point of view, McDonald's looks like a good buy as it is present in more than a hundred countries with close to 35,000 restaurants.
Conclusion
If you followed Yum! over the years, you would know that it has performed like an empire that is gradually building. Yum! has had a steady performance over the years, recording minimum growth of 10% in EPS year after year.
Even with such heavy competition, Yum! Brands are committed to its path of growth and are making substantial investments in its various strategies.
With Yum! bouncing back in Asian region, it further adds a brighter future. The company is still expanding the KFC, Pizza Hut, and Taco Bell branches across China, the U.S., and India. The company considers 2014 to be its year of resurgence and is expected to perform well in the future with its affordable services and innovation and by upgrading its assets.
