Yum Brands shares rise 4% following better than expected earnings

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Last Update: 24-Apr-13 07:45 ET

YUM! Brands (YUM $66.51 +2.36) reported first quarter adjusted earnings of $0.70 per share, $0.10 better than the Capital IQ consensus of $0.60;, while revenues fell 7.6% year/year to $2.54 billion versus the $2.56 billion consensus; worldwide system sales grew 1%, prior to FX, including 4% at Yum! Restaurants International (YRI) and 2% in the U.S. System sales declined 9% in China. Same-store sales declined 20% in China (previously reported). Same-store sales grew 1% at YRI and 2% in the U.S. Total international development was 380 new restaurants; 88% of this development occurred in emerging markets. Worldwide restaurant margin declined 2.7 percentage points to 15.9%, including a decline of 7.0 percentage points in China. Restaurant margin increased 1.4 percentage points at YRI and 2.4 percentage points in the U.S. Worldwide operating profit declined 14%, prior to foreign currency translation, including a 41% decline in China. Operating profit grew 19% at YRI and 5% in the U.S.

"While better than expected, the first quarter was extremely difficult for Yum! Brands. As anticipated, intense media attention surrounding poultry supply in China significantly impacted KFC sales and profit. Earnings per share declined 8% versus prior year, as our China Division operating profit fell 41%. Operating profit increased 19% at Yum! Restaurants International and 5% in our U.S. business. The negative media surrounding poultry supply in China has subsided. We have taken steps to enhance our industry-leading supply chain practices, and we're now in the midst of an aggressive quality assurance marketing campaign. However, our sales recovery has been adversely affected by the recent news of Avian flu. This news surfaced during the first week of April and continues to negatively impact same-store sales. We continue to remind consumers that properly cooked chicken is perfectly safe to eat. Historically, the sales impact of Avian flu publicity has initially been dramatic at KFC but relatively short-lived. We will stay the course with our plans to develop at least 700 new units in China this year to lay the foundation for future growth. We have complete confidence in a full sales recovery...There is no doubt 2013 will be a challenging year for our company. With news of Avian flu, there will obviously be more volatility with our China sales recovery. However, given better-than-expected first-quarter performance, our estimated mid-single-digit full-year EPS decline versus prior year remains unchanged. I'm confident we will end the year with momentum and restore our track record of consistently delivering double-digit EPS growth in 2014 and beyond."