By
Colleen Paulson
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April 23, 2008
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Yum! Brands (NYSE: YUM ) had a lot of tasty news to share in its first-quarter earnings, released Tuesday. Like foodie counterpart McDonald's (NYSE: MCD ) , Yum! beat expectations with EPS growth of 19%, excluding the sales of KFC Japan, and raised its outlook to 11% EPS growth for the year.
Same-store sales growth was super-sized in mainland China at 12% for the quarter; it was 5% for international stores and 3% for the U.S. (compared with the decrease in U.S. same-store sales last year). Yum! also feasted on strong overall operating profit growth of 13%, with management highlighting the impressive 33% jump in operating profits in China and an 18% increase for other international locations. On top of the revenue and profit growth, Yum! gobbled up almost $1 billion worth of its stock in the quarter.
While McDonald's, Burger King (NYSE: BKC ) , and Wendy's (NYSE: WEN ) are fighting over who can make the best 99-cent cheeseburger, Yum! is distinctly focused on international growth. Its target is 20,000 Yum! restaurants in mainland China, and it opened 88 new locations there last quarter. The currency benefits of the weak dollar netted an $8 million gain in China, but were more than offset by an $11 million increase in commodity costs.
Of course, Yum! Brands isn't immune to the rising price of food, with a 14% jump in overall food and paper expenses. Accordingly, China and U.S. restaurant margins were dinged by 160 basis points and 90 basis points, respectively. Inflation in food and commodities prices certainly could hamper profit growth. Management admitted as much in the earnings release, with U.S. profits forecasted to experience the biggest hit from rising prices.
Luckily for Yum!, it's a global economy, and increasing demand for American delicacies like KFC and Pizza Hut in China makes for a delicious outlook.
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