Restaurant operator Yum Brands to report on its third-quarter earnings Tuesday

By Bruce Schreiner, AP
Monday, October 5, 2009

Earnings Preview: Yum Brands Inc. reports Tuesday

LOUISVILLE, Ky. — Yum Brands Inc. is scheduled to report its earnings for its fiscal third quarter on Tuesday after the market closes. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Restaurant operator Yum Brands Inc. has consistently logged strong growth in earnings per share and has predicted a 10 percent increase for the full year over the prior year. But this year is shaping up as challenging.

The Louisville, Ky.-based operator of Taco Bell, KFC and Pizza Hut lowered its sales forecasts for two key markets — China and the United States — in the summer.

But Yum has continued to post strong earnings aided by aggressive restaurant expansions overseas and lower commodity costs.

Strong performance at KFC as it rolled out Kentucky Grilled Chicken in the second quarter also helped.

The company has said it was on track to open some 1,400 new restaurants overseas this year, maintaining its fast pace for expansion.

Other Yum brands include Long John Silver’s and A&W All-American Food.

BY THE NUMBERS: Analysts polled by Thomson Reuters on average expect the company to earn 58 cents per share for the quarter on revenue of $2.79 billion.

Yum earned 58 cents per share on revenue of $2.84 billion in the third quarter of last year.

ANALYST TAKE: Deutsche Bank analyst Jason West said he looks for “another strong margin performance, driven by lower food costs and aggressive expense reductions.” He reiterated a “hold” rating on Yum.

“Yum continues to be one of the more attractive stories in the restaurant industry given its exposure to favorable emerging market demographic trends and strong cash flow,” he said.

But he said Yum faces “risks around sales/profit disappointment in the U.S. or China,” along with a “premium valuation versus fast food peers.”

WHAT’S AHEAD: Yum Brands faces the prospect of sluggish same-store sales numbers in its key U.S. and China markets amid a weak economy. Same-store sales, or sales at stores open at least a year, are a key measure of restaurant performance.

STOCK PERFORMANCE: Yum shares fell 4.8 percent, or $1.70 during the quarter, which ended Sept. 5, to end it at $34.04. They rose $1.70, or 5.1 percent, to close at $34.85 Monday, near the top of their 52-week range of $21.50 to $36.96.

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