UPDATE 3-Yum raises forecast as China sales hold up

Tue Oct 9, 2012 6:27pm EDT

* Third-quarter EPS $0.99 vs. Wall Street view $0.97

* China same-restaurants sales up 6 pct, matching view

* U.S. same-restuarant sales rise 6 pct, beating view

* Raises full-year EPS forecast to $3.24 from $3.22

* Shares up 4 percent after hours

By Lisa Baertlein

Oct 9 (Reuters) - KFC parent Yum Brands Inc raised its full-year outlook on Tuesday after sales in China held up despite cooling economic growth in that market, the restaurant company's largest.

Shares of Yum, whose other chains include Pizza Hut and Taco Bell, rose 3.9 percent after the company also reported a third-quarter profit that topped Wall Street's expectations as same-store sales in its home U.S. market beat expectations.

Louisville, Kentucky-based Yum is the biggest Western restaurant operator in China, with more than 4,000 KFC shops and almost 740 Pizza Hut restaurants. It is widely viewed as a way for U.S. investors to bet on what is still the world's fastest-growing major economy.

In the latest quarter, China contributed more than half of Yum's overall revenue of $3.57 billion.

Prior to Tuesday's report, concerns about China - which generates roughly 40 percent of Yum's profit - had helped send shares in Yum down roughly 10 percent from an all-time high of almost $75 in April.

But Yum's sales at established restaurants in the country rose 6 percent for the quarter, matching the gain analysts polled by Consensus Metrix had expected.

China's restaurant margin increased 0.1 percentage points to 21.4 percent, even as wage rates spiked 8 percent and commodity prices increased 2 percent.

The country's economic growth likely slowed for a seventh straight quarter in the July-September period to the weakest level since the depths of the global financial crisis, according to a new Reuters poll.

That survey came on the heels of the World Bank's caution that there is a risk the slowdown in China could be deeper and more prolonged than expected.

"I think this puts some fears at ease, at least for now," Investment Technology Group Inc research analyst Steve West said of Yum's results.

"Even through the deep, dark days of the recession and the global slowdown, (Yum) tended to beat expectations" in China, he said.

Yum's strength is its broad geographic reach in China, where a growing middle class is attracted to Western Brands, West said.

The company's home market of the United States put up strong numbers after languishing for some time, with same-restaurant sales rising 6 percent for the quarter.

That result topped analysts' expectations for a gain of 4.4 percent, boosted by strong results from Taco Bell, which recently introduced a new menu, and bigger-than-expected gains at KFC and Pizza Hut.

Yum's net income for the quarter, ended Sept. 8, rose to $471 million, or $1 per share, from $383 million, or 80 cents per share, a year earlier.

Excluding a gain from refranchising restaurants, Yum earned 99 cents per share, topping analysts' average forecast by 2 cents per share, according to Thomson Reuters I/B/E/S.

Based on that performance, Yum now expects to earn at least $3.24 per share for the full year, up from the $3.22 it previously forecast.

The stock, which closed at $66.04 on the New York Stock Exchange, jumped to $68.60 in extended trading.

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