Yum reports 10 percent growth in 2Q earnings
Thursday, July 14, 2011
LOUISVILLE, Ky. (AP) — Yum Brands Inc., owner of the Pizza Hut, Taco Bell and KFC fast-food chains, said Wednesday that strong sales overseas served up 10 percent growth in its second-quarter profit, even though its U.S. business continued to struggle.
Yum’s sales in China rose fast, and its profit there soared. But the company reported across-the-board declines in the U.S., including a 5 percent drop in revenue at Taco Bell restaurants open at least a year.
That chain, which accounts for about 60 percent of Yum’s U.S. profit, is struggling to overcome publicity from a dropped lawsuit that claimed the filling in its tacos and burritos didn’t contain enough beef to be called that.
Taco Bell called the accusations false and fought back with hard-hitting marketing on television and in newspapers.
“The impact from that bogus lawsuit was more severe than we expected,” said Yum spokesman Jonathan Blum, who also pointed to high unemployment among Taco Bell’s core consumers as another reason for the disappointing performance.
To lure more customers back, the chain is preparing an ad campaign featuring discounts on some of its favorite items, Blum said in a phone interview after the earnings were released.
But revenue at KFC restaurants in the U.S. open at least a year also fell 5 percent, and Pizza Hut had a 2 percent decline. Company officials said earlier this year they expected the second quarter to be the year’s low point in the U.S.
Blum pegged the beginning of the drop in Taco Bell’s sales to the days after the lawsuit, while the KFC chain’s U.S. performance has been sluggish much longer.
On Wednesday, Yum said it expects things to get better in the U.S. by the fourth quarter, which begins in September.
It also raised its earnings forecast for the full year. Yum now expects to report a 12 percent or greater increase in earnings per share, excluding one-time items. The company previously said it expected at least 10 percent growth.
Shares of Yum Brands rose $1.57, or 2.8 percent, after hours after the company reported on its earnings. They ended regular trading Wednesday at $55.58, up 60 cents.
Louisville-based Yum said it earned $316 million, or 65 cents per share, for the quarter that ended June 11, up from $286 million, or 59 cents per share, a year earlier. Its revenue rose 9 percent to $2.8 billion.
Analysts expected adjusted earnings of 61 cents per share and revenue of $2.7 billion in the quarter.
Operating profit in Yum’s key China operations rose by a whopping 25 percent, adjusted for currency fluctuations. The company’s operating profit dropped 28 percent in the U.S.
Yum opened 99 restaurants during the quarter in China, putting it past 4,000 stores in the fast-growing market. It has roughly 38,000 worldwide.
KFC has become a leading fast-food brand in China, and sales at KFC stores there that have been open at least a year rose 17 percent in the quarter.
In Yum’s international division, which excludes China, operating profit rose 11 percent, adjusted for currency fluctuations. The company opened 142 new restaurants in 37 countries during the quarter.
Growth was far flung for that unit. Sales grew 44 percent in India, 33 percent in France, 21 percent in Thailand, 19 percent in Russia and 12 percent across Africa, Blum said.
Yum operates nearly 38,000 restaurants in more than 110 countries and territories.
The company also owns the Long John Silver’s and A&W restaurant chains, both of which are up for sale.
Yum officials will discuss the quarter’s results on a conference call at 9:15 a.m. Thursday.
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