Yum Brands Inc.'s profit narrowed in the first quarter as
business in China continued to weigh down on results even as its
KFC and Taco Bell brands reported strong sales increases.
Shares rose 4% in recent after-hours trading to $84.42, topping
a 52-week-high of $83.58 set on July 15 during regular trading.
China, at the heart of Yum's growth plans, accounts for about
half of the company's sales. But sales have been battered following
reports last year a supplier had intentionally sold expired meat.
Yum cut ties with the company, but it was the second incident in as
many years involving the company's suppliers. In late 2012, Chinese
media alleged that a KFC supplier used growth hormones and
antibiotics to make chickens grow faster.
Yum also faces increased competition in the country from
well-funded dining chains, such as Pizza Express, a U.K. chain
bought last year by Chinese private-equity firm Hony Capital.
Last quarter, Yum swung to a loss on a $361 million charge to
write down the value of its Little Sheep brand, which specializes
in Mongolian hot pot, in which diners dip raw meat and vegetables
into shared pot of broth. In the latest period, sales in China fell
6%, with sales at established stores, open for at least a year,
falling 12%. Still, in a news release Tuesday, Chief Executive Greg
Creed pointed to improved customer perceptions in that country
along with a 19% restaurant margin in the latest period.
Mr. Creed, who previously dismissed speculation of a spin off
Yum's Chinese operations, said the company remains on track to open
at least 700 restaurants in the country this year, just short of
the 737 units it opened last year. Overall, Mr. Creed said, the
company plans to open more than 2,100 restaurants abroad this year,
focusing on emerging markets, as it reverts to at least 10% profit
growth for the year. For the period ended March 21, Yum reported a
profit of $362 million, or 81 cents a share, down from $399
million, or 87 cents a share, a year earlier. Excluding special
items, such as refranchising costs, earnings fell to 81 cents from
87 cents a year earlier.
Revenue, which includes franchise and license fees, fell nearly
4% to $2.62 billion.
Analysts surveyed by Thomson Reuters expected 72 cents a share
on $2.64 billion in revenue.
Worldwide sales rose 4%, while restaurant margin fell 1.7
percentage points to 17.5%.
By brand, Taco Bell, which last year launched breakfast, taking
on segment leader McDonald's Corp., reported a 9% increase in the
latest period. Meanwhile, sales rose 8% at KFC and 2% at Pizza
Hut.
Through Tuesday's close, the company's stock had risen 6% over
the past 12 months.
Ilan Brat contributed to this article.
Write to Maria Armental at maria.armental@wsj.com
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