LOS ANGELES, Feb 5 (Reuters) - Yum Brands Inc YUM.N, owner of the KFC, Taco Bell and Pizza Hut fast-food chains, said on Tuesday it sees growth ahead for its U.S. business, after seeing its operating profit fall in the fourth quarter.
“Clearly, our challenge in 2007 was our U.S. business... In all candor, the best thing I can say about our weak U.S. performance in 2007 is that it sets us up for growth in 2008,” Chief Executive David Novak said on a conference call with Wall Street analysts.
Yum’s U.S. operations for the past year have been a sore point for the company, even as it posted stronger growth in China and international businesses.
In the fourth quarter, Yum’s franchised restaurants helped the company turn in a 1 percent increase in sales at restaurants open at least a year, but operating profit was down 1 percent from a year earlier due to higher food, paper and labor costs.
But the impact on fast-food restaurants was not uniform. Burger King Holdings Inc BKC.N, the world's second-largest hamburger chain, posted stronger quarterly results and said it has not seen its U.S. business slow.
For 2008, Yum executives forecast 2 percent to 3 percent U.S. same-stores sales growth and 5 percent operating growth, citing ongoing initiatives and easy comparisons against weak 2007 results.
Taco Bell posted flat domestic same-store sales in the fourth-quarter, ending three quarters of declines spurred by rising ingredient prices and an E.coli outbreak in the Northeastern United States a year ago that was linked to the Mexican-themed fast food chain.
“We are regaining our edge at Taco Bell and expect this brand to achieve very good results in 2008,” Novak said, adding that the company is continuing to build out its breakfast menu and was working to make every outlet a 24-hour operation.
Yum’s Pizza Hut brand is also getting a make-over.
Among other things, the company is pushing its budget-oriented Pizza Mia product and plans to introduce pasta dishes in April.
Yum CEO Novak said KFC “results for 2007 fell short of expectations and underscored the need for dramatic change.”
He said the company is working with franchisees on a new line of grilled chicken menu items and that it plans to give the business a more youthful image in its new advertising campaign.
Yum shares fell 4.6 percent to $34.16 in early trade on the New York Stock Exchange, but by midday was down less than 1 percent to $35.78.
Still, analysts remained cautious on the company’s domestic prospects.
“We continue to await evidence that 2008 initiatives will drive domestic results” in the second half of the year, Goldman Sachs analyst Steven Kron said in an client note.
Meanwhile, Kron said Yum’s fourth-quarter U.S. results make it harder to justify the premium on the company’s shares.
At the close of business on Monday, Yum shares traded at a premium of 19 times 2009 earnings estimates. The comparable ratio for McDonald's Corp MCD.N was 15.5 and 17.3 percent for Burger King Corp BKC.N. (Reporting by Lisa Baertlein, editing by Leslie Gevirtz)
Our Standards: The Thomson Reuters Trust Principles.