Restaurant chains operator Yum! Brands Inc. (YUM) said Wednesday after the markets closed that its second quarter profit rose 5% from last year despite stalled profit growth in China, as its U.S. business posted strong recovery.
The company's quarterly earnings per share, excluding items, came in below analysts' expectations, but its quarterly revenue managed to beat analysts' forecast.
Based on first-half results and current solid sales trends, the parent of the Taco Bell, Pizza Hut and KFC chains reconfirmed full year earnings per share growth forecast of at least 12%, or at least $3.22, excluding special items. Analysts polled by Thomson Reuters currently expect the company to earn $3.31 per share for the full year 2012. Analysts estimates typically exclude special items.
David Novak, Yum! Brands Chairman and CEO, said, "Our U.S. business increased operating profit 26% in the second quarter and drove our overall operating profit growth. We expect China and Yum! Restaurants International to drive our second-half profit growth."
Yum! Brands shares lost 2.21% in after hours trading after closing the day's regular trading session at $65.55, up $1.14 or 1.77%. The shares trade in a 52-week range of $47.15 to $74.44.
The company's U.S. division posted total revenues of $818 million in the second quarter, down 7% from $883 million in the second quarter of last year. U.S. division's same-store sales for the quarter increased 7%, driven by growth of 13% at Taco Bell, 4% at Pizza Hut and 1% at KFC. The division's operating profit surged 26% to $166 million in the second quarter.
China division's total revenues surged 32% to $1.56 billion in the second quarter and same-store sales rose 10%, but the division's operating profit remained flat with last year at $182 million. rose 21% to $210 million.
China division's operating profit declined 4%, prior to foreign currency translation, as high inflation drove restaurant margins down 4 percentage points compared to last year. The company expects that to be short-lived, returning to double-digit profit growth in the second half of the year.
The division opened 160 new units during the second quarter and now expects to open a record of at least 700 new units this year.
Yum! Restaurant International division's total revenues for the quarter increased 5% to $770 million, while operating profit grew 3% to $150 million.
The company also raised its new-unit forecast to a record 1,700 new international units for the year.
Yum! is facing stiff competition in the Chinese market, which, of late, has become a favorite hub for global fast-food chains. Hamburger chain McDonald's Corp. (MCD) has announced that it plans to boost investment in China and double its presence there by 2013.
As for other U.S. companies, California Pizza Kitchen Inc. (CPKI) and Starbucks Corp. (SBUX) also have a presence in the Chinese market, and are planning to expand.
Yum! Brands is also planning for a big push in the Indian market. The company is planning to increase its number of restaurants in India, and is aiming at total sales of $1 billion from that country by 2015. The company has also created a separate division as Yum! Restaurants India. For the second quarter, India division system sales increased 32%, prior to foreign currency translation, driven by unit growth of 29% and same-store sales growth of 7%.
For the second quarter ended June 16, 2012, the Louisville, Kentucky-based company reported net income for the second quarter of $331 million or $0.69 per share, compared to $316 million or $0.65 per share for the year-ago quarter.
Excluding special items, adjusted earnings for the second quarter were $0.67 per share, compared to $0.66 per share in the prior year quarter.
On average, 21 analysts expected the company to earn $0.70 per share for the second quarter.
Total revenues for the second quarter rose 12% to $3.17 billion from $2.82 billion in the same quarter last year. Eighteen analysts had a consensus revenue estimate of $3.12 billion for the second quarter.
For the quarter, company sales increased 14% to $2.76 billion, while franchise and license fees and income grew 6% to $406 million.
During the second quarter, the company repurchased 3.1 million shares of its common stock for $211 million.
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