Yum! Brands (YUM, Financial) reported better-than-expected second quarter results with adjusted earnings of 75 cents per share on $3.01 billion revenue against an expectation of 74 cents per share on revenue of $3.09 billion. Yum’s same-store sales remained flat.
Company CEO Greg Creed said in a statement, “Challenging industry conditions in the U.S. contributed to soft sales results. However, our three brand divisions in the aggregate delivered core operating profit growth largely in line with our expectations and remain on track to deliver against their full-year core operating profit growth targets.”
Here’s a look at Yum Brand’s second quarter earnings
A look at the quarter numbers
Yum generated revenue of $3.01 billion, down 3.1% compared with last year. This is primarily attributable to the flat comparable store sales reported by most of the segments. Though second-quarter earnings were high, sales figures were not up to expectations. The company’s operating profit increased 14% during the quarter. Its net income rose 44% to $339 million during the second quarter, translating to earnings of 81 cents a share. The restaurant chain presently reports results under four segments – KFC, Pizza Hut, Taco Bell and China.
Sales in restaurants open for at least a year improved 2% for KFC in contrast to analysts' expectation of 2.3%. This was led by the growth seen in the U.S. and other developed and emerging markets. Pizza Hut’s same-store sales remained unchanged. Same-store sales rose 1% in the U.S. but dropped 1% in other markets in the second quarter. However, the operating segment had registered a growth of 3% in the previous quarter. Taco Bell reported a decline of 1% in comps owing to increasing competition in the breakfast segment in the U.S. market. The unit registered a growth of 1% in the prior quarter and 6% in the year-ago period.
Performance in China
Yum’s performance in China has been on the radar for a long time. Analysts are keeping track of the company’s development as the region happens to be a key revenue and profit contributor. The second quarter is typically a slow one in China. However, the company seems to be in good shape.
Yum opened 72 restaurants during the quarter, increasing its number to 7,200. However, the overall sales plunged. Customer footfall was low as it curbed its spending on account of “challenging industry conditions,” as cited by Creed. Yum is currently involved in the spinoff of its China business as a separate company altogether by October. The company intends to become a franchiser in China with special rights to KFC, Taco Bell and Pizza Hut.
During the second quarter, the China division’s same-store sales were flat yet better than the decline that it witnessed in the year-ago quarter. China is an important center for Yum Brands as it is the region from which the company earns maximum revenue. The operating profit earned from China is greater than any other divisions.
The company earned $1.59 billion in the second quarter. KFC saw a 3% rise in same-store sales. However, Pizza Hut comps were down 11% from the year-ago quarter. Taco Bells witnessed a 1% decline in same-store sales.
Last word
Yum has lifted its guidance for the current fiscal. "Given our strong first-half results and current trends in China, I'm pleased to raise our full-year core operating profit growth forecast to at least 14 per cent from 12 per cent previously," said Greg Creed. Yum is seeing steady improvement in China. The company seems to be on track to close the year on a good note.
Disclosure: I do not hold any position in any of the stocks discussed in this article.
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