Yum Raises Guidance Ahead of China Spinoff -- WSJ

By Maria Armental 

Yum Brands Inc. on Wednesday raised further a key annual profit projection ahead of the planned spinoff of its China business even as sales fell again in the September quarter.

Louisville, Ky.-based Yum now projects core operating profit, adjusted for currency conversions, to increase at least 15% from a year earlier, compared with its earlier view of at least 14%. Those projections, however, will be adjusted to account for the China division spinoff, company officials said.

Yum has reported lower sales on a year-over-year basis in all but one quarter in the past two years.

Shares, up 21% this year, fell 2.3% to $86.61 in after-hours trading.

Yum China is to begin trading Nov. 1 on the New York Stock Exchange under the ticker symbol YUMC. The company will be led by longtime Yum veteran Muktesh "Micky" Pant and has secured investments from a prominent Chinese deal maker and the financial affiliate of Chinese e-commerce giant Alibaba Holding Ltd.

Company officials will update shareholders on the spinoff next Tuesday. A conference call to discuss the most recent financial results is scheduled Thursday morning.

Yum 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 the country.

Over all, for the period ended Sept. 3, Yum reported profit surged 48% to $622 million, or $1.56 a share. Excluding special items, profit rose to $1.09 a share from $1 a year earlier.

Meanwhile, revenue, which includes franchise and license fees, fell 3% to $3.32 billion.

Analysts surveyed by Thomson Reuters had projected $1.10 a share on $3.47 billion in revenue.

In the recently completed period and adjusted for currency conversions, system sales at KFC rose 7%, while Taco Bell reported a 5% increase and Pizza Hut broke even. The China business, which accounts for more than half of Yum's revenue, reported an 3% system sales increase, as business continues to pick up, helped in part by tax changes in China this year. However, Pizza Hut remains a concern as sales at locations open for at least a year contracted 4% in the third quarter.

In a statement, Chief Executive Greg Creed blamed the decline in the China division's comparable sales to negative sentiment in the region following an international court ruling over the South China Sea.

"The good news is the incident was short-lived, and the sales impact continued to dissipate through August and September," Mr. Creed wrote, adding results at Pizza Hut continued to improve from the previous quarter.

Yum reported overall sales at locations open for at least a year rose 1% from the year-ago period, driven by KFC and Taco Bell and offsetting declines at Pizza Hut and the China division. Analysts surveyed by FactSet had projected a 2.4% increase.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

October 06, 2016 02:48 ET (06:48 GMT)

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