Growth & Income: Yum! Brands

China’s appetite for Colonel Sanders’ chicken continues to grow. The world’s most populated country now accounts for 41.5% of Yum! Brands’ (YUM) overall revenue, up from 35.8% a year ago.

The company, which also operates Pizza Hut and Taco Bell, reported solid third quarter earnings on October 5. Management also increased earnings guidance for the remainder of the year, prompting analysts to raise their estimates.

Third Quarter Results

Yum reported third quarter results on October 5. Earnings per share came in at 73 cents, a penny ahead of the Zacks Consensus Estimate. It was a 5% increase from the same quarter in 2009.

The company has not had an earnings miss in over 5 years.

Growth was strong once again in the China market. Yum recognized 19% system sales growth there, and a 24% increase in operating profit. Same-store sales were up 6%.

The company has opened 245 new restaurants in China so far in 2010.

Yum’s international division (which excludes China) reported sales growth of 7%. Operating profit improved 18%.

In the U.S., same-store sales were up just 1%. Pizza Hut and Taco Bell saw single-digit increases, while KFC declined 8%. Operating profit dropped 2%.

Overall sales were up 3% for the company. The company was able to manage expenses well as operating profit improved 16%.


The company raised guidance for the remainder of 2010 following the third quarter earnings release. The current forecast for 2010 EPS is between $2.43 and $2.48 per share, up from previous guidance of $2.39 to $2.43.

Eleven analysts have revised their estimates higher in the last 30 days. The Zacks Consensus Estimate is currently above guidance at $2.50. This would equate to 15% annual EPS growth. It looks as though Yum will achieve its target of at least 10% EPS growth, which would make it 9 years in a row for the fast-food conglomerate.

The 2011 estimate is currently $2.79, or 12% higher than 2010 EPS.


Yum announced a 19% dividend increase on September 14. It has raised its dividend at an impressive 38% compound annual rate since 2005.

The stock currently yields 2.1%.


Shares trade at 19.4x forward earnings, a premium to the industry average of 16.1x. Its PEG ratio is a reasonable 1.7 though.

It is a Zacks #2 Rank (Buy) stock.

By Todd Bunton

YUM! BRANDS INC (YUM): Free Stock Analysis Report

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