Yum forecasts 10% profit rise in ’08, deep cut in restaurant ownership

LOUISVILLE Ky. Yum! Brands Inc., the parent of Pizza Hut, KFC, Taco Bell and several smaller quick-service other brands, said this month it expects to post a 10-percent increase in its 2008 per-share profit, which has been the company’s long-term target for years.

To achieve the 10-percent profit growth, Louisville-based Yum expects 20-percent growth in both revenue and operating profit in its booming China region and flat revenue growth and a 5-percent operating profit jump at both its international division and its U.S. operations. The company presented its 2008 plans in a statement Dec. 6.

The projections for flat revenue growth are based mainly on Yum’s expanded refranchising efforts, especially in the United States, where the company said it expects to decrease its restaurant ownership to less than 10 percent of its chains by 2010, down from the current 20-percent ownership. Yum has been selling hundreds of its U.S. restaurants to franchisees for many years, as the tactic — now en vogue at many large restaurant companies — typically improves profit margins as the company gains more franchise fees and is burdened with less operating expenses.

In its statement, Yum said it would concentrate on refranchising its Pizza Hut, KFC and Long John Silver’s brands. The financial impact from these pending transactions was expected to be revealed at Yum’s annual meeting Dec. 12, after press time. It did report that global gains from refranchising efforts could lead to expected pre-tax proceeds of at least $400 million and a reduction in assets of about $300 million.

In the United States, Yum said it expects a blended same-store sales jump between 2 percent and 3 percent in 2008, which was the same range it had expected for this year prior to the Taco Bell E.coli scare and the rat infestation at a New York KFC unit. Those incidences led to dramatic same-store sales losses.