Yum Boosts Its Profit Forecast, Helped by China Rebound -- Update

By Maria Armental 

Yum Brands Inc. on Wednesday raised its projection for core operating profit growth, citing the rebound of its China business during the first half of the year.

Louisville, Ky.-based Yum, which said Wednesday that it expects to complete the spinoff of the China business by Oct. 31, now projects core operating profit, adjusted for currency conversion, to increase at least 14% from a year earlier, compared with its earlier view of 12% growth.

Shares, up 17% this year, rose 4.6% to $89.67 in after-hours trading.

The China business, which accounts for about half of Yum's revenue, reported an 3% system sales increase, adjusted for currency conversions.

But Pizza Hut, which company officials have said accounts for about one-quarter of the company's operating profit in China, remains a concern. Sales at Pizza Huts open for at least a year contracted 11% in the second quarter and dragged down the division's key comparable-sales metric to even with the year-ago period. However, company officials said comparable sales at Pizza Hut have increased from the year-ago period so far this quarter.

Restaurant margin, meanwhile, improved 1.1 percentage points to 15.7%.

Yum, which has pledged to return $6.2 billion to shareholders before the spinoff is complete, was the first major Western fast-food company in China. It opened a KFC near Beijing's Tiananmen Square in 1987 and built the brand into the largest foreign-restaurant chain in the country. So far, company officials said Wednesday, they have returned $2.4 billion of the $6.2 billion.

Over all, for the period ended June 11, Yum reported a profit of $339 million, or 81 cents a share, compared with $235 million, or 53 cents a share, a year earlier. Excluding costs related to the planned separation of the China business and other items, profit rose to 75 cents a share from 69 cents a year earlier.

Revenue, which includes franchise and license fees, fell 3% to $3.01 billion. It was the third consecutive quarterly decline.

Analysts surveyed by Thomson Reuters had projected 74 cents a share on $3.09 billion in revenue.

System sales at KFC rose 6% in the latest quarter, also adjusted for currency conversions, while Taco Bell reported a 2% increase and Pizza Hut a 1% increase.

On a comparable-sales basis, Yum reported results were even from the year-ago period as KFC helped offset lower sales at Taco Bell. Analysts surveyed by FactSet, however, had projected a 1.7% increase.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

July 13, 2016 18:27 ET (22:27 GMT)

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