Buy Yum! Brands Stock Before This Happens

On Thursday, Taco Bell, Pizza Hut, and KFC operator Yum! Brands (NYSE: YUM  ) reported second-quarter earnings per share of $0.61, down 11.7% from the same year-ago period. Excluding special items, earnings per share dropped to $0.56 from $0.67 during the second quarter of 2012.

Meanwhile, revenue fell 8.5% over the same period, to $2.9 billion, hurt primarily by a 20% fall in quarterly same-store sales from the company's China Division, which itself drove China system sales down 12%.

yum stock

Image source: Yum! Brands

Now that all sounds scary enough, so why did Yum! Brands stock only fall 1.1% when all was said and done Thursday?

When less-bad is great
Remember, Yum! Brands' troubles in China began late last year when the Chinese government identified a local company, which had supplied tainted chicken to both Yum! and McDonald's (NYSE: MCD  ) restaurants in the region.

McDonald's Asia/Pacific sales also suffered a 9.5% decline in January as a result, but with less than 2,000 McDonald's restaurants in China compared to Yum!'s more than 6,000 locations, Mickey D's exposure to the fallout was much less extreme. Even so, while the bad poultry wasn't exactly Yum! Brands' fault, the company still apologized, and quickly cut ties with the supplier in question. In addition, both Yum! and McDonald's promised process improvements in the region to prevent such quality lapses from recurring.

Then, just as Chinese consumer sentiment toward both companies had begun to improve, significant negative media coverage surrounding Avian flu in the country once again devastated Yum!'s China sales, setting off the following chain of year-over-year same-store sales decreases since then:

  • March: China same-store sales drop 13%
  • April: China same-store sales plummet 29%
  • May: China same-store sales plunge 19%
  • June (released Wednesday): China same-store sales fall 10%
When you look at it that way, it sure seems as though the worst of the storm has passed.
 
In fact, that's why Yum!'s earnings press release Wednesday also noted last month's 10% decline not only included a 13% fall at KFC, but also 6% growth at China Pizza Hut locations.
 
Buy before this happens
What's more, though Yum! maintained its previous outlook for a "mid-single-digit full-year EPS decline" from last year's overall results, it also stated China Division same-store sales are expected to continue to recover over the course of the year, finally posting positive comps in the fourth quarter.
 
Of course, it's also important to note Yum!'s total quarterly system sales still managed to grow 1% in spite of its weakness in China, thanks to a 6% boost from Yum! Restaurants' International and moderate 2% growth in its enormous U.S. market. In addition, Yum! Brands also managed to open 315 new locations internationally last quarter, with more than three quarters of those in emerging markets.
 
Foolish takeaway
Finally, when you add to that Yum! Brand's recently outlined plans to double domestic Taco Bell sales to around $14 billion over the next eight years, part of which includes a nationwide rollout of breakfast offerings at the chain by the end of 2014, YUM stock is starting to look more appealing by the day.
 
For now, though, I'm convinced there's little need to wait and see how Yum! Brands' recovery in China pans out. To the contrary, I think it's apparent the recovery is well under way, so investors would be wise to buy shares of this growing business before it's complete.
 

However, if Yum! Brands still isn't enough to whet your appetite -- and if you're looking for more ways to profit from the global economy -- remember it can be as easy as investing in your own backyard. The Motley Fool's free report, "3 American Companies Set to Dominate the World," shows you how. Click here to get your free copy before it's gone.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2533385, ~/Articles/ArticleHandler.aspx, 4/18/2014 12:21:40 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 15 hours ago Sponsored by:
DOW 16,408.54 -16.31 0.00%
S&P 500 1,864.85 2.54 0.00%
NASD 4,095.52 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

4/17/2014 4:02 PM
YUM $76.34 Down -0.52 +0.00%
Yum! Brands CAPS Rating: ****
MCD $100.25 Down -0.58 +0.00%
McDonald's CAPS Rating: ****

Advertisement