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



Is Yum! Back on Track?

Yum! Brands (NYSE: YUM  ) struggled during the last year amid poultry issues and an avian flu outbreak in China. However, the company's recent comparable sales for China show signs of improvement. Its rival McDonald's (NYSE: MCD  ) is still trying to cope with challenges in its largest market -- the U.S. While McDonald's has blamed bad weather for its disappointing quarterly performance, Chipotle Mexican Grill (NYSE: CMG  )  grew its comps by 13% in the same period.

Quarterly analysis
On April 22, Yum! Brands released its first-quarter results. The company earned $0.87 per share to beat analysts' expectations of $0.84 per share; its earnings grew 21% from the first quarter of last year.

Yum! Brands' same-store sales in China rose 9%, driven by KFC's comps growth of 11% and Pizza Hut's comparable-sales growth of 8%. In the same period of last year, the company's Chinese comps declined by 20%. This drop resulted from KFC's dismal performance, as the restaurant saw a 24% decline in comparable sales.

In the U.S., same-store sales for Yum! declined during the quarter; sales at KFC dropped by 3%, while sales at Pizza Hut and Taco Bell declined by 5% and 1%, respectively.

Where is Yum! heading?
Yum! has finally posted strong comps in China after this metric had fallen for five consecutive quarters, which has renewed the hopes of investors. The results also show that Chinese consumers are now much more willing to dine at the company's restaurants than they were last year, when the Chinese government said that it had found antibiotics in KFC's chicken. Moreover, a bird flu outbreak had also hampered the company's sales in the region. Now, these issues are finally fading away. As China contributes more than 50% of the company's revenue, it's the most important market for the restaurant chain.

Over the last few months, Yum! has been using social-media campaigns in China to assure consumers that its food is safe. It has also promised new initiatives in the region to improve its KFC brand. Last month, the company introduced a new menu at KFC with the roll-out of two new chicken sandwiches and three rice dishes along with drinks and desserts. It said that it will also invite Chinese celebrities to promote its latest items.

With the company doing well in China, it's confident about opening 700 new stores in the country this year. In a nutshell, Yum! has finally recovered in China.

In the US, Yum! launched a breakfast menu at Taco Bell last month, which mainly includes items like waffle tacos. The company's Senior Vice President of Public Affairs Jonathan Blum said that the breakfast is "off to a great start." However, with the company's breakfast competing with that of McDonald's, it won't be that easy to grab substantial market share. McDonald's breakfast menu is one of the most popular menus in the U.S., and the company has done a great job in this area during the last few years.

McDonald's and Chipotle Mexican Grill
McDonald's continues to post weak results in the U.S. market, as comps for the region fell 1.7% in the first quarter. The company is struggling due to its high serving time, and as a result customers have opted for other restaurants like Wendy's, Burger King, and Chipotle Mexican Grill. In order to reduce its serving time, McDonald's is adding more preparation tables that can accommodate more ingredients. McDonald's yields a healthy dividend of 3.20%, but it has provided a capital return of -0.44% on a year-over-year basis.

On the other hand, Chipotle Mexican Grill continues to grow; the company reported an 8.5% increase in its first-quarter earnings as its earnings per share rose to $2.64. However, the restaurant's share price tumbled 6% as it missed analysts' consensus estimate of $2.86, according to Thomson Financial Network. The company also said that it will raise its prices by 3%-5% in the coming weeks. This price increase is the first from the company in more than three years. Chipotle has given a year-over-year capital return of 39% to investors.

Bottom line
The latest comps data for the Chinese market clearly shows that Yum! is getting back on track. More and more customers are now heading back to KFC and Pizza Hut in the country, which is a great sign for the restaurant giant. Given the fact that its same-store sales in China have grown after dropping for five straight quarters, Yum! has a brighter future ahead of it. The company is confident about its breakfast menu in the U.S.; however, it will have to continue offering high-quality items at affordable rates to compete against McDonald's. In short, 2014 looks like it will be a far better year for Yum!, which makes it a good buy.

Will this stock be your next multi-bagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

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.

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: 2927371, ~/Articles/ArticleHandler.aspx, 8/30/2015 10:59:54 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...

Waqar Saif

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

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

12/31/1969 7:00 PM
BKW $0.00 Down +0.00 +0.00%
Burger King Worldw… CAPS Rating: *
CMG $721.20 Down -5.97 -0.82%
Chipotle Mexican G… CAPS Rating: ***
MCD $96.25 Down -0.23 -0.24%
McDonald's CAPS Rating: ***
WEN $9.22 Down -0.03 -0.27%
The Wendy's Compan… CAPS Rating: ***
YUM $81.82 Down -0.45 -0.55%
Yum! Brands CAPS Rating: ****