Shares of Yum! Brands Inc. jumped 4.7 percent in trading yesterday to close at $40.30 a day after the fast-food company reported a profit surge at its overseas restaurants. Yum's stock price flirted all day with the record closing high of $40.60, seen last Oct. 30. The Louisville-based owner of KFC, Pizza Hut and Taco Bell had demonstrated Tuesday that its strong international presence is helping it to weather a slowing U.S. economy. UBS analyst David Palmer wrote to investors that the solid growth in China and other international markets makes Yum "virtually unique among its global consumer peers" because the profit, revenue and earnings per share are all expected to be higher in 2010 than they are now.
David Novak, Yum's chief executive, told analysts in a conference call that the 33 percent first-quarter increase in operating profit in China wouldn't necessarily be the norm in the future. But there's still plenty of room for more profit in China, Novak said. By the end of this year, Yum will have more than 3,000 restaurants in China, more than any other fast-food company but still well below the 14,000 locations that Yum believes it eventually could open there. There's also potential for more business at breakfast, which now stands at about 5 percent to 6 percent of overall sales in China. Novak said KFC restaurants in China are drawing customers of all ages, and a campaign to sell dessert, tea and coffee at Pizza Hut could give Yum a competitive advantage against Starbucks because he said the pizza chain's "environment and experience is superior" to the coffee company's. "We have enough irons in the fire to give us some pretty good optimism that while we may not have the kind of robust growth that we're having right now, that the busts are becoming less and less likely," Novak said.
Sales at established U.S. restaurants were up 3 percent for the quarter, but operating margin fell 5 percent, partly because menu prices haven't kept pace with rising food costs. That pressure is expected to ease in the second half of the year, and Yum is hoping to boost sales at U.S. restaurants with promotions, including a new value menu at Taco Bell called "Why Pay More?" "People are constantly amazed at how much food you get for the amount of money you have to pay," Novak said of Taco Bell. Plans at domestic KFC restaurants include the chain's venture into Kentucky Grilled Chicken, and other nonfried menu items. Pizza Hut recently launched a line of pastas, and it now has more than 1,200 locations serving chicken wings through its Wing Street concept.
Courier-Journal
