Yum gains from rebounding performance in China

By Bruce Schreiner

Associated Press

Published: Tuesday, Oct. 9 2012 3:30 p.m. MDT

This Tuesday, Oct. 9, 2012 photo, shows a combined Long John Silvers and Taco Bell restaurant in Orlando, Fla. Fast-food operator Yum Brands Inc. said Tuesday its third-quarter net income rose by 23 percent, serving up a winning combo of across-the-board sales gains in the U.S. and a quick turnaround in its China market. The owner of the Taco Bell, Pizza Hut and KFC chains also raised its earnings guidance for the year.

John Raoux, Associated Press

LOUISVILLE, Ky. — The owner of the Taco Bell, Pizza Hut and KFC chains, Yum Brands Inc., said Tuesday that its fiscal third-quarter net income rose by 23 percent on a turnaround in its fast-growing China division and higher demand in the U.S.

The Louisville, Ky., company raised its earnings guidance for the year. Shares rose nearly 4 percent in after-market trading.

Operating profit in China rose 22 percent, when adjusted for currency fluctuations. Its costs for ingredients and workers didn't rise as fast as it had in the second quarter, when operating profit dropped. The profit decline had been a rare event for Yum's key China division.

The company also upped its record pace of restaurant openings in China, opening 192 locations. It expects to open at least 750 stores this year, up from its prior forecast of at least 700 new restaurants.

In the U.S., operating profit rose 13 percent in the quarter. A new, upscale menu at Taco Bell created by celebrity chef Lorena Garcia helped lift revenue in restaurants open at least a year 7 percent for the Mexican chain.

The same figure, which is key for retailers because it excludes new and closing stores, rose 6 percent at Pizza Hut and 4 percent at KFC.

Operating profit in Yum's international division, which excludes China and India, rose 14 percent when stripping out changes in currency values. Companies that do business overseas take a hit when the dollar increases against foreign currencies.

Overall, Yum reported net income of $471 million, or $1 per share, in the three months ended Sept. 8, up from $383 million, or 80 cents per share, a year ago.

Excluding one-time items, Yum's earnings were 99 cents per share for the quarter. Revenue rose 9 percent to $3.57 billion from $3.27 billion.

Analysts polled by FactSet expected earnings of 97 cents per share on revenue of $3.66 billion.

The company now expects profit of at least $3.24 per share, excluding special items, from its prior forecast of at least $3.22 per share. Analysts polled by FactSet predict profit of $3.27 per share.

Shares rose $2.60, or 3.9 percent, to $68.64 after earnings were released. In regular trading, shares closed down 90 cents at $66.04.

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