Yum! Rises Overseas

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Yum! Brands (NYSE: YUM) holds title to the No. 1 chicken, pizza, Mexican, and seafood restaurants in the U.S. Its KFC, Pizza Hut, and Taco Bell are global leaders in their categories. On average, the company opens three international restaurants every day and has opened more than 1,000 international locations in each of the last three years.

While Yum! has yet to match the same-store sales growth of McDonald's (NYSE: MCD) or Wendy's (NYSE: WEN) in the U.S., its double-digit sales and earnings growth overseas is impressive.

In China, KFC is the best-known international brand, and has modified its menu to appeal to tastes in Sichuan, Guangdong, and Beijing. Brand loyalty and such innovations have allowed KFC to open 1,000 restaurants in China in 14 years, compared to 570 outlets for McDonald's.

According to China Daily, China is "Yum!'s biggest market outside of the U.S., with growth rates in the high teens, contributing one-third to international profits of $389 million during fiscal 2002." When it comes to chicken in China, KFC rules.

And China is not Yum!'s only target. Pizza Hut's market share in South Korea exceeds 40% -- and Yum! expects sales in South Korea to grow in the high teens. From Taco Bell in Shanghai to Long John Silver's in Singapore and A&Ws in Egypt, Yum! is expanding around the globe. Already, KFC has more international than U.S. locations.

The stock opened today at about the same price as when I wrote about the company on Dec. 5. At the time, I said, "Purchase of the shares now only makes sense if you think the company can accelerate its earnings growth." At 17 times earnings, that is still good advice.

What's new is the mounting evidence that Yum!'s international profit margins could improve as it gains scale. Investors with a long-term horizon should profit from the expansion of Yum!'s global leaders.

You can e-mail W.D. Crotty. W.D. owns stock in Yum! and McDonald's. Join W.D. and other investors at The Motley Fool discussion boards to talk about food stocks. For a 30-day free trial, click here.