How Yum! Earnings Could Slide as McDonald's and Burger King Jump

Yum! Brands (NYSE: YUM  ) will release its quarterly report on Tuesday, and the stock has seen its share of rises and falls throughout 2013. Yet the big question that investors are focused on is whether Yum! earnings will decline from year-ago levels even as rivals McDonald's (NYSE: MCD  ) and Burger King (NYSE: BKW  ) have analysts expecting at least modest growth in their respective fast-food businesses.

Yum! is the company behind Kentucky Fried Chicken, Taco Bell, and Pizza Hut, and its success has largely hinged on an aggressive push into the rapidly growing Chinese market. Yet that strategy has caused some problems for the company lately, as both it and McDonald's have suffered at the hands of an avian flu epidemic in China that sent same-store sales plunging. How long will the slowdown last, and can Yum! recover from its lingering effects? Let's take an early look at what's been happening with Yum! Brands over the past quarter and what we're likely to see in its report.

Stats on Yum! Brands

Analyst EPS Estimate

$0.93

Change From Year-Ago EPS

(6.1%)

Revenue Estimate

$3.53 billion

Change From Year-Ago Revenue

(1%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can better times in China rescue Yum! Brands earnings?
Analysts have had mixed views on Yum! earnings in recent months. They've reduced their third-quarter estimates by a penny per share, but they've boosted their full-year 2014 projections by twice that amount. The stock has moved up and down sharply but on the whole has ended up little changed, rising just 1% since early July.

Much of the the company's recent trouble stems from China's problems. In its second-quarter report, Yum! reported an almost 12% drop in earnings per share, with overall sales falling 8.5%. China was a huge part of Yum!'s shortfall, as same-store sales in the emerging-market nation fell 20% during the quarter. McDonald's saw weakness earlier in the year as well because of China, but Yum!'s exposure there is more substantial. Rather than using the broad-based joint-venture approach that Burger King has adopted throughout much of the world, Yum! has instead pressed hard in making China a central focus.

Yet Yum! seems to be turning the corner in China. Even though comps in the nation are still posting double-digit losses, monthly sequential numbers are starting to show improvement. Moreover, strength in Yum!'s Pizza Hut segment demonstrates that restaurant-goers are getting over their fears more generally, even if the chicken scare is still holding KFC's results back. As a result, Yum! remains confident about its expansion plans both within China and in other high-growth areas like India and Africa, with plans to open hundreds of new stores by the end of the year.

Closer to home, Yum! is paying homage to the rise of fast-casual specialty outlets. Its KFC eleven concept tries to cash in on the success of Chipotle's (NYSE: CMG  ) limited menus and transparent assembly-line viewing experience. Even though Taco Bell might seem like a more obvious competitor to Chipotle than KFC, success with KFC eleven could lead Yum! in a brand-new yet profitable direction domestically to boost its sales.

In the Yum! earnings report, watch for numbers from China, but also look past the region to how the business is doing around the world. Pockets of strength will likely show up in many places, helping to put the news from China in better perspective from a company-wide standpoint.

Make money around the world
You can learn a lot more about both Yum! and McDonald's in the The Motley Fool's free report "3 American Companies Set to Dominate the World." Inside, you'll find out how fast food has made such a strong impression around the world and how those two companies in particular have had such great success in their expansion. You'll also learn the name of a third company that has used global brand power to grow. Click here to get your free copy before it's gone.

Click here to add Yum! Brands to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (1)

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.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2670626, ~/Articles/ArticleHandler.aspx, 9/1/2014 10:50:43 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...


Advertisement