International Yumminess

Restaurateur Yum! Brands (NYSE: YUM  ) continues to feast on overseas growth, with little end in sight. As for the less-tasty prospects at home, the company game plan appears to be to let franchisees increasingly share in the pain, which only serves as another benefit to shareholders.

In what is becoming a habit, Yum! announced second-quarter results Wednesday that handily beat analyst expectations. Total sales grew a respectable 9%, but the company was able to leverage that into 15% earnings growth, with the China and international divisions leading the way on the top line and in profitability.

The stodgy United States business continues to dampen the international excitement, as it posted flat systemwide sales, which includes both company-owned and franchised restaurants. It appears that Taco Bell is still reeling from a number of recent unappetizing developments, and it remained a laggard with a same-store sales decline of 7%. (The company also operates KFC and Pizza Hut restaurants.)

Fortunately for investors, relief is in sight because Yum! plans to lower the number of domestic stores it owns by 30% over the next couple of years. This will shift a more mature sales base to franchisees and free up capital for the company to increase its dividend and repurchase stock, both of which it has done in spades over the past three years.

This also leads to more lucrative franchise and license fees, which peers such as Sonic (Nasdaq: SONC  ) and Wendy's (NYSE: WEN  ) like to focus on. In contrast, fast-growing rivals such as Motley Fool Hidden Gems pick Chipotle (NYSE: CMG-B  ) and Jack in the Box (NYSE: JBX  ) prefer to own most of their stores, which is what Yum! is choosing to do in China.

Overall, impressive international trends continue to more than offset domestic weakness and will likely carry Yum!'s stock to new highs. Management increased earnings guidance for the year on the back of strong growth in China, and by the time overseas growth starts to cool, domestic trends likely will have stabilized further. In other words, Yum! Brands has plenty of options and cash flow with which to continue to reward investors.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.

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10/25/2016 10:09 AM
YUM $86.55 Down -1.25 -1.42%
Yum! Brands CAPS Rating: ****
CMG-B.DL $0.00 Down +0.00 +0.00%
JBX $20.04 Down +0.00 +0.00%
Jack in the Box CAPS Rating: ***
SONC $21.53 Down -4.96 -18.72%
Sonic CAPS Rating: **
WEN $10.72 Down -0.30 -2.68%
Wendy's CAPS Rating: ***