Yum! Restaurants International and India Will Save the Day

Yum! Brands (NYSE: YUM  ) delivered some dismal earnings on Tuesday along with downbeat guidance. The company's most important market, China, continued to suffer from a poultry-supply issue that has lingered since last December. With same-store sales down in the region and flat in the United States, the market is finding plenty of reasons to send the stock down. But not all is fowl with the parent company behind KFC, Pizza Hut, and Taco Bell. One area of Yum!'s business continues to thrive and grow well into the double digits. It may not be the company's most important segment today, but it very well could be in the near future. Here's why Yum!'s earnings weren't so bad.

A bad time
Sure, same-store sales at KFC in China dropped 14% and the company doesn't expect the fourth quarter to be much better. And, OK, the U.S. market isn't too strong at the moment, either, with flat sales overall, despite a healthy 4% uptick at Taco Bell. In the past decade, buying Yum! stock wasn't about the U.S., it was about Chinese and emerging-market expansion. The company already experienced its meteoric rise from the China expansion -- and management mentioned it was opening an impressive 700 more stores throughout the year -- but it's the latter that holds future growth.

Even during Yum!'s dismal third quarter, India market sales grew 24%, while International emerging markets grew 11%. Yum! Restaurants International and India will have record new-store openings this year -- more than 1,000. The stores are largely franchised in these regions, which include Russia, South Africa, Argentina, Mongolia, and more. The franchise model is great for keeping up-front costs down and gross margins up. By 2015, the number of restaurants in India alone will have doubled to 1,000. Both unit growth and same-store sales growth in Yum! Restaurants International and India are driving the numbers higher.

As times goes on and the number of units compared to the company's total gains its share, YRI and India will become greater factors to the company's overall earnings. In the third-quarter earnings announcement, management is still fully confident in the company's ability to resume growing earnings in the double digits on an annual basis starting in 2014 and onward.

The wounds will heal
Investors and analysts wanted more out of China, and the company did fall beneath expectations in its recovery effort. Investors need to realize, though, that this is a short-term event, and does not rattle the foundation of this incredible growth stock. Even in this wretched quarter, the company increased its dividend by 10% -- the ninth consecutive quarter of such action. Yum!'s problems are surface-level and do not threaten the long-term future. This is clear in the incredible growth the company still found in YRI and in India.

6 picks for ultimate growth
Tired of watching your stocks creep up year after year at a glacial pace? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.

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

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.

Compare Brokers

Fool Disclosure

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: 2675944, ~/Articles/ArticleHandler.aspx, 9/26/2016 12:17:00 AM

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 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

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

9/23/2016 4:04 PM
YUM $90.64 Up +0.17 +0.19%
Yum! Brands CAPS Rating: ****