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Mixed Q4 Results Send Yum China Shares 10% Higher on Growth Potential

By Daniel Miller – Updated Apr 9, 2019 at 5:17PM

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Yum China beat earnings estimates but fell short on revenue; however, the company's expanding footprint is laying the groundwork for growth.

What happened

Shares of Yum China Holdings, Inc. (YUMC 0.13%), a licensee of Yum! Brands in mainland China with exclusive rights to KFC, Pizza Hut, and Taco Bell, are up 10% as of 10:55 a.m. EST Friday after announcing fourth-quarter results.

So what

Starting with the top line, revenue during the fourth quarter increased 2% to $1.91 billion, compared to the prior year's $1.87 billion result. Yum China's fourth-quarter revenue checked in just below analysts' estimates calling for $1.92 billion, but its bottom line more than made up for the slight top-line miss. Fourth-quarter adjusted earnings per share checked in at $0.12, better than analysts' call for $0.09 per share. Same-store sales grew 2% during the fourth quarter thanks to KFC's 3% gain offsetting Pizza Hut's 4% decline -- pizza has lagged behind chicken in China, lately.

Check out the latest Yum China earnings call transcript.

A close-up of a person's two hands breaking a part a piece of fried chicken

Image source: Getty Images.

Speaking further on KFC and Pizza Hut sales was Joey Wat, CEO of Yum China: "We achieved a 6% increase in system sales in constant currency during the fourth quarter, marking our ninth consecutive quarter of system sales growth since the spin-off," said Wat, in a press release. He continued:

This strong growth was led by accelerated new store openings and a robust performance at KFC, which delivered 3% same-store sales growth and 9% system sales growth during the quarter. Although Pizza Hut's sales remained soft, we are pleased to see same-store traffic growth of 1% and positive trends in customer feedback.

Now what

Yum China expanded its footprint with a staggering 819 new stores in 2018, which sets a strong foundation for future growth despite a softer broader industry background. Management did warn investors that the first quarter would be a "tough lap" because of strong performances during the past three Chinese New Year holidays. The company's focus now is to continue expanding, including 600 to 650 gross new units during 2019, in a market management believes can support 20,000 stores over the long term -- more than twice today's store base.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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