Yum's Profit Improves as China Sales Recover -- Update

By Anna Prior 

Yum Brands Inc.'s first-quarter profit rose 18%, as the parent company of KFC, Taco Bell and Pizza Hut recorded improved sales in China.

Yum's earnings topped Wall Street's expectations.

The restaurant company has been trying to recover from food-safety concerns in China, the company's biggest market, related to KFC chicken suppliers more than a year ago. Late last year, Yum began an advertising and social-media campaign to assure people that its food is safe, and promised new initiatives to improve its KFC brand in China during this year.

Yum in March launched a new menu and marketing campaign in China, rolling out two new chicken sandwiches and three rice dishes as well as drinks and desserts for its China-based KFC outlets. The company also said at that time it will tap Chinese celebrities to promote its new products.

On Tuesday, Yum said same-store sales in China grew 9% for the first quarter, including 11% growth at KFC and 8% growth at Pizza Hut Casual Dining.

Outside of China, the company reported solid sales and profit performance in Africa and Russia, as well as developed markets such as KFC in the U.K. and Australia, but experienced disappointing U.S. results, said Chief Executive David Novak, blaming the negative impact of severe weather.

Yum said U.S. same-store sales for all three brands declined during the most recent period, with a 3% drop at KFC, 5% drop at Pizza Hut and 1% drop at Taco Bell.

Taco Bell, which launched a breakfast menu last month with items such as the waffle taco, makes up the bulk of the company's U.S. operating profit, said Senior Vice President of Public Affairs Jonathan Blum, noting that breakfast is "off to a great start" at Taco Bell and will be more apparent in the company's second-quarter results.

For the first quarter, Yum reported a profit of $399 million, or 87 cents a share, up from $337 million, or 72 cents a share, a year earlier. Excluding special items, adjusted per-share earnings for the year earlier period were 70 cents.

Revenue rose 7.5% to $2.72 billion.

Analysts polled by Thomson Reuters were expecting earnings of 85 cents a share on revenue of $2.8 billion.

Yum's world-wide restaurant margin increased 3.3 percentage points to 19.2%.

By brand, excluding China and India, total KFC division same-store sales grew 1%, while Pizza Hut division same-store sales declined 2% and Taco Bell division same-store sales fell 1%.

Shares rose 3.9% to $80.50 in after hours trading. Through Tuesday's close, the stock has risen 19% in the last 12 months.

Write to Anna Prior at [e-mail]

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