China boosts Yum 2Q results

China boosts Yum 2Q results

But “challenging industry conditions” lead to soft Q2 sales in the U.S.

Yum! Brands Inc. raised its profit guidance for the full year on Wednesday, as unexpectedly strong performance in the company’s KFC China unit in the second quarter offset mixed same-store sales for the company’s three brands elsewhere — including the U.S.

Same-store sales were flat at Yum China for the quarter ended June 11, as a 3-percent increase at KFC in the country offset an 11-percent decline at Pizza Hut there.

This performance led the company to increase its operating profit forecast for the year to 14 percent from 12 percent. Investors cheered the news and the stock was up 4 percent in after-hours trading.

Company performance outside of China was a different story. Same-store sales rose 2 percent at KFC outside of China, but were flat at Pizza Hut and down 1 percent at Taco Bell.

Those results were softer than expected. Yum CEO Greg Creed attributed the soft sales to a weak operating environment in the U.S. Same-store sales rose 2 percent at KFC in the U.S in the quarter, and 1 percent at Pizza Hut. Taco Bell operates mostly in the U.S.

“Challenging industry conditions in the U.S. contributed to soft sales results,” Creed said in a statement. Yet he said the company’s three brands “delivered core operating profit growth largely in-line with our expectations.”

Yum trades largely on its China results, because it depends on those results for much of its profits and revenue.

That should change toward by October. Yum said in its earnings release that it is targeting Oct. 31 of this year to spin off the China business as a separate company that will operate Yum’s brands in that country as a franchisee.

Net income surged 44 percent to $339 million, or 81 cents per share, from $235 million, or 53 cents. Excluding special items, however, earnings per share rose 9 percent to 75 cents from 69 cents. Revenue in the quarter fell 3 percent to $3 billion from $3.1 billion.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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