Unlike last quarter's finger-lickin' good results, investors found Yum! Brands (NYSE: YUM ) less than palatable following Tuesday's second-quarter earnings announcement.
Yum!'s Q2 net income came in 35% higher at $303 million, or $0.63 per share. However, without special items, earnings were $0.50 per share, a mere 10% increase. Total revenue actually fell 7%, to $2.48 billion.
The restaurant company, which runs the KFC, Pizza Hut, and Taco Bell brands among others, said same-store sales in the U.S. fell 1%, dragged down by an 8% comps decrease at Pizza Hut. Same-restaurant sales in China also dropped 4%. On the brighter side, Yum!'s commodity costs were more favorable in the quarter.
Many investors find Yum! Brands' presence in China particularly appetizing. While that may still be a promising long-term growth area, the company said Chinese consumers are currently showing the same thrifty tendencies as their American counterparts. Still, the company increased its number of outlets in China by a staggering 18% year over year. Yum! said it still expects 10% earnings growth in 2009, as it tries to offset reduced expectations in same-store sales with higher margins.
Personally, Yum! Brands doesn't strike me as an exciting stock idea. Its diversified portfolio of restaurants faces a lot of tough and tasty competition, including Papa John's (Nasdaq: PZZA ) , Wendy's/Arby's (NYSE: WEN ) , and Chipotle (NYSE: CMG ) (NYSE: CMG-B ) . And although Yum! Brands' expansion in China is exciting, I'm generally concerned about potential culture clashes when American companies dive into foreign countries.
I find McDonald's (NYSE: MCD ) a more tantalizing stock idea than Yum! Mickey D's has long proven that it can excel in good times and bad, and it even trades at a slightly cheaper multiple, with a price-to-earnings ratio of 15 compared to Yum's P/E of 16. However, both stocks have impressive four-star ratings in Motley Fool CAPS.
I may not find Yum! Brands appetizing, but what do you think? Feel free to rate it in CAPS or leave your thoughts in the comment boxes below.
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