Yum Brands Swings to Profit but Sales Decline

By Maria Armental 

Yum Brands Inc. on Wednesday swung to a fourth-quarter profit although sales declined, missing Wall Street projections.

Its bruised China business, which Yum plans to spin off by year's end, showed continued signs of recovery, posting a 7% sales increase in the December quarter and a 2% increase at restaurants open for at least a year, the second consecutive quarterly increase of the key metric.

Shares of the company, down 1.6% over the past 12 months, fell 1.5% to $71.40 in late trading.

Restaurant margin, meanwhile, improved 4.3 percentage points to 11.4%.

Sales in India declined 9%, driven by a 13% decline in restaurants open for at least a year.

The Louisville, Ky., company was the first major Western fast-food company in China, opening a KFC near Beijing's Tiananmen Square in 1987 and building the brand into the largest foreign-restaurant chain in that country.

But the China division, which accounts for the bulk of its sales and once at the center of the company's expansion plans, had dragged results amid food quality concerns.

As part of the planned spinoff, Yum has pledged to return $6.2 billion to shareholders before the separation is complete.

Over all, for the period ended Oct. 26, Yum reported a profit of $275 million, or 63 cents a share, compared with a year-earlier loss of $86 million, or 20 cents a share. The year-ago results were hammered by a $361 million charge from adjusting the value of Little Sheep, at the time billed as one of the first successful takeovers of a major Chinese brand.

Excluding special items, profit rose to 68 cents a share from 61 cents a year earlier. Revenue, which includes franchise and license fees, declined 1.2% to $3.95 billion.

Analysts surveyed by Thomson Reuters had projected 66 cents a share on $4.02 billion in revenue.

Restaurant chains have largely franchised locations as a way to avoid volatility of high-cost items, such as labor and commodities. Yum plans to franchise 96% of its restaurants by 2017. At the end of the third quarter, the most recent figure available, about 79% of its restaurants were run by a franchisee.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

February 03, 2016 17:06 ET (22:06 GMT)

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