Yum! Brands’ Q2 Growth Overshadowed by China Woes

by Angela Nazworth | July 19, 2012 10:32 am

Yum! Brands’ Q2 Growth Overshadowed by China Woes

Restaurant chain owner Yum! Brands (NYSE:YUM[1]) on Wednesday announced second-quarter net income[2] of $331 million (69 cents per share), topping last year’s $316 million (65 cents per share). Revenue increased 12% to around $3.2 billion.

Despite overall profit growth, adjusted earnings of 67 cents per share were three cents lower than Capital IQ estimates, sending YUM shares dipping more than 1% in early-morning trading Thursday.

Investor confidence was seemingly shaken by the company’s 4% profit slippage in China after currency translation. The rare decline is being attributed to higher food costs and labor inflation.

The company’s worldwide system sales grew 8%, prior to foreign currency translation, including 27% in China and 1% in the U.S.

Looking forward, Yum dramatically raised its new-unit forecast to 1,700 new international units for the year. That number is inclusive of at least 700 new units in China.

Yum Brands Chairman and CEO David Novak said in a press release, “Our U.S. business increased operating profit 26% in the second quarter and drove our overall operating profit growth,” and he expects China and Yum! Restaurants International to drive second-half growth.

The company’s U.S. division posted total revenues of $818 million, down about 7% from last year. However, the division’s same-store sales increased 7% in the second quarter, driven by 13% growth at Taco Bell. Pizza Hut and KFC reported growth of 4% and 1% respectively. The U.S. division’s operating profit jumped $166 million, a 26% increase from last year.

Endnotes:
  1. YUM: http://studio-5.financialcontent.com/investplace/quote?Symbol=YUM
  2. announced second-quarter net income: http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsArticle&ID=1716057&highlight=

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