What happened
Shares of franchise restaurant operator Yum China (YUMC -0.32%), which owns and runs KFC and Pizza Hut in China, soared on Wednesday, rising as much as 16.3%. As of 12:25 p.m. EDT, the stock was up 14.4%.
Yum China's gain is likely driven by the company's stronger-than-expected earnings per share, its surprise increase in KFC's same-store sales, and a boost to the company's dividend and its share buyback authorization.
Image source: Getty Images.
So what
Yum China reported revenue of $2.21 billion, up from $2.13 billion in the year-ago quarter. On average, analysts were expecting revenue of $2.23 billion. EPS increased 16% year over year to $0.51. This beat a consensus analyst forecast for $0.45.
Regarding the company's solid profitability, CFO Jacky Lo said: "We are pleased to report that we effectively managed restaurant margins at both brands during the quarter, despite an increase in promotional activities. Pizza Hut maintained operating profit at the same level as the year-ago period due to more targeted investments in new products and better labor efficiencies."
In addition, the company's same-store sales decline of 1% for its overall stores was not as bad as analysts' consensus estimate for a 1.5% decrease in the key metric. This was due to KFC's 1% increase in same-store sales, when analysts were expecting a decline in the metric.
Finally, investors are likely pleased with the company's reinvigorated capital return efforts. Yum China increased its quarterly dividend payout by 20% and expanded its share repurchase authorization from $550 million to $1.4 billion.
Now what
Looking ahead, CEO Joey Wat said she is "excited by the opportunity to grow our portfolio in China's Western quick-service restaurant and casual dining markets."
Ms. Wat added: "We will continue to add a range of store formats across the spectrum of low- and high-tier cities to drive growth. We will also build out our digital and delivery ecosystem so that we can better serve our customers and create a seamless online to offline experience."
