* Q4 EPS excl items $0.75 vs Street view $0.74
* Same-restaurant sales up 21 percent in China
* Shares up just over 2 percent in extended trading
By Lisa Baertlein
Feb 6 KFC parent Yum Brands Inc
reported fourth-quarter earnings that topped Wall Street's view
after accelerating sales and operating profit at established
restaurants in China helped ease worries that growth in its top
market was slowing.
The shares of the fast-food chain, which are up more than 25
percent from a year ago and trading around all-time highs, were
up 2.3 percent to $64.62 in extended trading after Yum also
reported better-than-expected restaurant sales growth in
up-and-coming international markets.
"They demonstrated once again that they're one of the best
consumer plays on emerging markets," said Tucker Brown, research
principal at Sustainable Growth Advisors, which holds Yum in its
SGA Global Growth Fund.
China - the world's fastest growing major economy - is Yum's
biggest earnings driver, accounting for just over 40 percent of
Yum's unexpectedly strong 21 percent gain in sales at
established restaurants in China took many analysts by surprise.
That result overshadowed an expected but still sharp rise in
food and labor costs, which took a bite out of margins during
the fourth quarter.
"I think the topline growth in China trumped the cost
pressures in this case," Morningstar analyst R.J. Hottovy told
Recent price increases also helped the company deliver a 15
percent operating profit for its China division and should help
sustain high-quality growth, Brown said.
During the third quarter, Yum's China same-restaurant sales
rose 19 percent and operating profit was 7 percent.
Based in Louisville, Kentucky, the company has almost 4,500
restaurants, mostly KFC outlets, in China. In 1987, it was the
first Western fast-food brand to enter China and now has far
more restaurants than competitors such as McDonald's Corp
and Starbucks Corp.
Yum's other brands in China are Pizza Hut, East Dawning and
Little Sheep, in which it has a controlling stake.
China's government is attempting to gently cool the
country's red hot economic growth, a prospect that has investors
on edge because the growth helps underpin the global economy.
A Reuters poll in January showed China's economic growth is
likely to moderate to 8.4 percent from 2011's 9.2 percent as
demand at home and abroad slackens.
Yum's net income in the fourth quarter ended Dec. 31 grew 30
percent to $356 million, or 75 cents per share -- topping
analysts' average view by 1 cent, according to Thomson Reuters
Same-restaurant sales at Yum Restaurants International (YRI)
were up 3 percent during the quarter. That division included
Yum's other non-U.S. markets such as France, India and Russia.
Beginning in the first quarter, India will become a separate
business segment at Yum.
While Yum's business is robust in international markets, it
has been working on a turnaround in its U.S. business.
Yum's overall sales at U.S. restaurants open at least one
year were up 1 percent in the fourth quarter. That included an
expectations-topping 6 percent rise at Pizza Hut and declines of
2 percent at Taco Bell and 1 percent at KFC.
The overall growth of 1 percent "should be seen as a victory
for the chronically underperforming U.S. segment of the
business," said Channing Smith, managing director of Capital
Advisors, which holds Yum in its Capital Advisors Growth Fund.
He recommended that investors use any pullbacks in Yum's stock
price to build a position in the company.