No, don't worry. Fortunately, Yum! Brands
Worldwide revenue growth was 8%. Same-store sales grew 3%, led by a 17% leap in the land of the Great Wall. Other international restaurants posted 5% same-store sales, while U.S. operations were up 1%.
Consolidated operating expenses at the restaurant level also grew 8%, the same as sales. General and administrative expenses were up a whopping 16%, leading to a consolidated operating profit increase of only 1%. Fully diluted earnings per share of $0.44 grew 5%, far slower than year-to-date EPS growth of 15%, but two cents better than consensus analyst expectations of $0.42.
Business in China is clearly on fire, with systemwide sales up 39% for the quarter and operating profits up 44%. No wonder Yum! Brands opened an additional 471 units in China during 2007, up from 364 new units the prior year.
U.S. results for the company were sluggish. While franchise business grew modestly, sales at company-owned stores fell 5%. U.S. operating profit also dropped 1% on commodity cost inflation.
One positive note on U.S. operations is Taco Bell same-store sales improved to flat after declines in the first three quarters. The Taco Bell brand is starting to show signs of a recovery after an E. coli breakout in late 2006 at some East Coast restaurants.
The company offered 2008 EPS guidance of $1.82 to $1.85 per share, representing "at least 10% growth." That is in line with how analysts expect the company to perform, and is similar to historical EPS growth rates in the low teens.
But Yum! Brands clearly has some work ahead of it. Chief Executive David Novak said on the conference call that the "best thing about the company's weak U.S. performance in 2007 is it sets us up for growth in 2008." True, but not necessarily a ringing endorsement of domestic operations.
My fellow writer Kristin Graham waxed lyrical about Yum! Brands recently, picking it as her best stock for 2008. While I admire the company's brands and see a ton of international growth on the horizon, competition in the fast-food sector against the likes of McDonald's
The stock sports a trailing-12-month P/E of around 21. This strikes me as a pretty fair valuation at this time. Despite Yum! Brands' unquestioned success in China, I would want to see more domestic momentum before jumping on the bandwagon.
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