Maybe it really is a fast-food nation. Yum! Brands (NYSE:YUM), the whimsical name behind the Taco Bell, Pizza Hut, and KFC chains, reported a 21% increase in first-quarter earnings and raised its outlook today. Then, it talked temptingly about initiating a dividend, and a "meaningful" one at that. Investors found it all too irresistible, pumping the stock up more than 10% to a new 52-week high.
Yum! reported second-quarter earnings of $142 million, or $0.47 per share, compared to $117 million, or $0.39 per share, in the same period last year. Its international unit reported an increase in operating profit of 36%. Yum! increased its 2004 earnings forecast to $2.30 per share.
Investors were likely salivating over the enticing idea of a dividend; everybody likes a stock that provides a continuous stream of income, particularly Fools. (If it does initiate a dividend, it could be included in Motley Fool Income Investor, which finds solid stocks with dependable payouts.)
On a fast-food industry basis, though, Yum!'s strong earnings mirror those of Wendy's International (NYSE:WEN), which had a similarly upbeat day, reporting a 20% growth in profit.
While Taco Bell and Pizza Hut are Yum!'s bellwethers, with KFC being the laggard, Yum! has plenty of interesting variables working in its favor. Look no further than its aggressive overseas initiatives, including its move to dominate fast food in one heck of a hot market: China. Meanwhile, though, it hits the spot when it comes to many popular fast-food consumer tastes. It's more diverse than rivals like McDonald's (NYSE:MCD) or Papa John's (NASDAQ:PZZA), with a fast-food chain solution to a variety of moods.
Despite the investor euphoria, it's not all good news. KFC's same-store sales were down 7% here in the U.S., and Yum! still has its work cut out for it in trying to convince Americans to give the Colonel another chance. Second-quarter earnings will include the impact of the much-publicized avian flu in Asia, though the company was quick to say that China has already recovered and it stands by its second-quarter outlook.
Pointed out at the Fool recently, the fact that fast-food chains like Yum! continue to rack up such good numbers despite flagging consumer confidence goes a long way in saying that fast food is back in vogue.
Still, there are plenty of good signs beyond the revitalized consumer. With Yum!'s belief that it can turn KFC around, its aggressive overseas presence, its recently tamed debt, and its thoughts of turning cash flow into a sweeter deal for investors, it may very well be a tasty time for Yum! Brands.
Alyce Lomax does not own shares of any companies mentioned.
