Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Best Way To Invest In Fast Food Growth Is Yum! Brands, Inc.

Source: Yum! Brands Corporate Site

The American consumer is more health conscious than ever. This has led to many consumers favoring Subway, Panera Bread, and Chipotle Mexican Grill over traditional fast food restaurants like McDonald's (NYSE: MCD  ) . While McDonald's is likely to benefit from the rising middle class in emerging markets, another company stands to gain from this trend much more.

A yummy treat for investors 
Unfortunately for Yum! Brands (NYSE: YUM  ) , the biggest headlines related to its international exposure have surrounded excess levels of antibiotics being found in its chicken from two suppliers in China and the negative impact of the bird flu in China. The good news is that Yum! Brands is slowly recovering from this negative press, and according to QSR Magazine, its KFC brand is the fastest growing fast food (or quick service) brand internationally. 

The fastest growing fast food companies on an international level are as follows: KFC, Subway, McDonald's, Starbucks (NASDAQ: SBUX  ) , Pizza Hut (also owned by Yum! Brands), Baskin-Robbins (owned by Dunkin' Brands), and Domino's Pizza.

Breaking down the list 
Yum! Brands makes the "fastest growing international fast food brands" list twice. It might surprise some people that McDonald's ranks third on this list, since it's often seen as a mature company. In the United States, it is a mature company, and it's constantly looking for ways to fuel its top line. If you look carefully at recent company reports, you will see that McDonald's is slowly heading more toward a Starbucks, with an increased focus on its McCafe coffee and breakfast items. It will be interesting to see how it plays out.

McDonald's will not take the "Starbucks approach" internationally. International consumers, especially Asian consumers, aren't as health conscious as American consumers, and dining at an American fast food restaurant is actually seen as prestigious. 

Speaking of Starbucks, considering its success in the United States, if it sees traction in international markets, then it could be a massive home run for the company. Not only is the name a well known American brand, but caffeine is mildly addictive. It Starbucks can hook international consumers like it did American consumers, then you could see significant growth in the future. Starbucks has also done a good job of catering to local tastes and decor in China.

As far as the largest international fast food brand is concerned, that title goes to McDonald's, followed by KFC, Burger King Worldwide, Pizza Hut, Subway, Domino's Pizza, and Starbucks.

Take a closer look at that list. McDonald's and Burger King must battle each other, and Pizza Hut and Domino's Pizza are capable of stealing market share from one another. However, KFC has no significant competition.

Furthermore, when you look at Yum! Brands, try not to focus too much domestic operations, considering approximately 70% of its profits come from outside the United States.

Recent results
In the fourth quarter, Yum! Brands saw worldwide system sales grow 3% year over year, including 3% growth in China, and 6% internationally. Sales declined 1% domestically. 

Comps slid 4% in China. This would often be seen as a negative, but it shows improvement considering comps plummeted 13% for the fiscal year. Comps climbed 2% internationally, but slipped 2% domestically.

These numbers aren't spectacular, but they're also slightly deceiving. If the negative events in China prove to be temporary, then Yum! Brands is performing well all around the world with the exception of the United States.

The poor performance in the United States could also present an opportunity. If Yum! Brands opts to close underperforming domestic locations -- whether it be Taco Bell, KFC, or Pizza Hut -- it will free up capital to invest in higher-growth markets, such as China and India, where the middle-income consumer is on the rise and the populations are north of 1 billion. 

As long as a company is seeing strong growth somewhere, there is opportunity, especially when that company is fiscally sound and the fastest growing fast food (or quick service) company on an international basis. In regards to fiscally sound, Yum! Brands sports a somewhat high debt-to-equity ratio of 1.3, but it generated strong operating cash flow of $2.1 billion over the past year.

The Foolish takeaway
Considering an investment in the fastest growing fast food chain outside of the United States is logical. It will take more time for KFC's reputation to improve in China, but it should eventually do so. Yum! Brands is also fiscally sound and has the capability of transferring some of its efforts from domestic to emerging markets, where growth potential is much higher. Additionally, Yum! Brands offers a dividend yield of 2%. Please do your own research prior to making any investment decisions. 

The No. 1 way to LOSE your wealth without ever even knowing it...
You've fought hard to build wealth for you and your family. Yet one all-too-common pitfall could completely derail your dreams before you even know it. That's why a company The Economist hails as "an ethical oasis" has isolated five simple questions you must answer to ensure that your financial future is really secure.

Can you answer YES to all five of these eye-opening questions?
Click here to find out -- before it's too late!

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: 2847306, ~/Articles/ArticleHandler.aspx, 9/5/2015 4:15:36 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...

Dan Moskowitz

Dan Moskowitz spends the majority of his time researching stocks. He believes that fundamentals, and logic pertaining to industry trends, win out over the long haul.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

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

9/4/2015 4:00 PM
MCD $94.85 Down -1.16 -1.21%
McDonald's CAPS Rating: ***
SBUX $54.28 Down -0.41 -0.75%
Starbucks CAPS Rating: ****
YUM $78.89 Down -1.33 -1.66%
Yum! Brands CAPS Rating: ****