I've called Yum! Brands
Overall, Yum!'s earnings rose a solid 10%, but that figure belies some very divergent results in the company's geographic divisions. Operating profit in the U.S. was down 28%, while China saw a 31% gain and the company's international division saw operating profit soar 19%.
Same-store sales reflect a similar picture. China was up 18%, international climbed 2%, and the U.S brought up the rear, with a decline of 4%. Those comps in China show just how robust this market is, and it's what has me licking my fingers at the opportunity. Yum! has more than 4,000 KFC and Pizza Hut locations in China and is also in the process of acquiring Little Sheep Group, a chain of 450 hot pot restaurants there. The company is investing where it's seeing success.
The attractiveness of investing in a U.S.-based company with significant China growth should be even more obvious following the scandals that have plagued Chinese companies this year. While China's Country Style Cooking Restaurant
Yum!'s management blamed the lackluster U.S. performance on the fallout from the recent Taco Bell lawsuit. Taco Bell accounts for about 60% of the company's U.S. revenue. While the company predicted that the U.S. situation would get better by the fourth quarter, I'm less sanguine about those prospects. As the company itself noted, high unemployment among its customers is hurting growth. And that's not something that will heal quickly.
We're seeing a similar story play out with Wal-Mart
But that poor U.S. showing wasn't enough to keep the company from increasing its earnings guidance for the year -- another great sign. The company expects earnings per share to gain at least 12%.
On the back of great growth in China and elsewhere internationally, I'm very encouraged by Yum!'s prospects, even at a P/E of 22. So do you think it's time to invest in Yum!?