Trading at $22.43 as of Feb. 10, 2003

Yum! Brands (NYSE: YUM) ... Why do I love thee? Let me count the ways...

  • First, there's your name. It might not be perfect, but it sure beats the previous name, the cold, impersonal "Tricon Global Restaurants." I suppose the change was necessary. You were once the overseer of three major fast-food chains (uh... I hear you now like to be called "quick-serve restaurants") -- Taco Bell, Pizza Hut, and KFC. But now you've added two more names: Long John Silver's and A&W All-American Food. So the catch-all "Kentaco Hut" is out.

  • Then there's your might. Bigger isn't always better in investment candidates, but your size does attest to some strong performance in years past. You're now the world's largest restaurant company, with more than 32,500 restaurants in more than 100 countries and territories.

  • And your scope. You're not mainly a burger establishment, like some outfits. You're not all about fried rice, either. Your brands include a range of very popular foods: fried chicken, pizza, Mexican-style food, and more. Heck, with A&W, you're now a player in the burger-and-shake world, too.

  • You're innovative. You're a pioneer in "multibranding," having created many retail outlets that house two or three of  your brands under one roof. I see that, according to a press release, you now operate over 1,800 multibranded restaurants, generating nearly $2 billion in annual system sales.

  • You're still growing. You're apparently adding three new locations per day, for a total of more than 1,000 a year. You plan to double your international presence within a decade. Not many giants can keep up with that kind of growth.

  • Your numbers are solid. Well, perhaps not super-solid. But promising. For example:
    
      1998      1999     2000      2001
    
    Revenues            $8.5 bil.  7.8      7.1       7.0
Net income          $492 mil.  413      627       445
Gross margin         20%       23%      25%       25%
Net profit margin    5.25%      8%     5.8%      7.1%
Earnings per share  $1.42     1.96     1.39      1.62
Long-term debt      $3.4 bil. 2.4      2.4       1.6

Your numbers, overall, have been a bit up and down. But they're generally improving. Debt, for example, has been more than halved in the past few years. Gross margins are marching steadily upward. Net margins are wavering but improving. Perhaps most troubling above is that revenues, your top line, have been shrinking. If you can turn that around, given stronger margins reflecting better cost control, you'll do well.

  • I like your candidness, too. A lot. As my colleague Matt Richey noted, you can tell a lot about a company from its CEO's annual letter to shareholders, and in your 2001 report, CEO David Novak was pretty frank: "I want you to know that we don 't think we 're nearly as good as we should be at doing what matters most in our industry: running great restaurants and making our customers happy. If you were to look at our customer survey numbers, you would see we rank in the middle to bottom tier on the basics, and last in the attitude we convey regarding our commitment to customer satisfaction. This is unacceptable and as you'll read in this report, we are bound and determined to do something about it. We began making improvements in 2001 and we will not rest until we are ranked number one by our customers." He went on to detail the company's goals and strategies, too, ending with a list of ways by which the company's success should be measured. Bravo!

  • I must also confess that I like what you offer. I've dined at a few of the best restaurants in the world and enjoyed them very much. But I also love Taco Bell's original Tacos and Burrito Supremes. I love fried chicken and pizza, too. And perhaps counter-intuitively, I think it's OK that, at the moment, I tend to patronize Popeye's and Domino's more than KFC and Pizza Hut. Having room for improvement can be a good thing. Improved results can drive shareholder value.

Finally, from AOL's Thomson data feed, I gathered these additional numbers:

Key Measures as of 01/13/03 (latest 12 months/most recent quarter) 

  
    Company   Industry    S&P 500
  
  P/E                  3.3        16.0       30.6         
Price/Sales          0.98       0.91        1.34         
Price to Cash Flow   7.9        8.5        14.20

These suggest that your current stock price is probably not too rich. Intrigued investors might want to dig a little deeper and gather more information before deciding whether to plunk some money into your stock. Jeff Fischer (TMF Jeff) just wrote about Yum!'s fourth-quarter and year-end results on Fool.com. Also, have a look at the very informative Yum! website. And drop in on our Yum! discussion board, too, to see what other Fools are saying.

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Selena Maranjian is smarter than a speeding bullet and faster than a tall building. To see her complete stock holdings, view her profile. If you like her writing, you might also be interested in books she has written or co-written: The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools. 

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