It's scary to think how much higher Yum! Brands' (NYSE: YUM) stock would be if domestic restaurant performance could come close to matching the impressive results being posted at the international stores.
First-quarter results released Monday after the market close show just how well Yum's international stores are performing. System sales increased 10% and operating profit jumped 25% in the international division. The China division, which collectively refers to China, Taiwan, and Thailand, is growing the fastest and saw a 24% improvement in system-sales growth, with a 31% jump in operating profit.
Problem is, the United States business still accounts for more than half of sales, and it is seeing falling sales, profits, and certain public relations disasters at the formerly high-flying Taco Bell restaurants. "Rats!" is right, as the division also posted much lower operating margins.
Overall, domestic woes weren't enough to offset international success, which means total company sales, earnings growth, and cash flow generation remain strong. Earnings grew almost 19% during the first quarter, and management raised guidance for the full year; it now expects 11% bottom-line growth. The good news sent the stock price soaring near the $70 mark, returning more than 50% since August lows.
Investors can count on more of the same, as Yum! has a long-term target of 20% operating profit growth in the China division, 10% internationally, and 5% here at home. If management can right domestic growth trends (and maintain a rodent-free environment for customers), Yum! could position itself to have a lead role in the global fast-food market.
While peer burger joints Wendy's (NYSE: WEN) and Burger King (NYSE: BKC) are floundering in most markets, archrival McDonald's (NYSE: MCD) does pose a threat -- it is currently outperforming Yum! with positive domestic and international trends. Additionally, it is also a more profitable company, and it released superior first-quarter results. However, if you're looking to capitalize on Asian demand for greasy American fast food, Yum! may be your most appetizing option.
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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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