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Yum! Quarterly Growth in China Offsets Declining Operating Profit in U.S.

Yum! Brands Inc., the owner of the KFC and Taco Bell restaurant chains, said third-quarter profit gained 6.9 percent, as declining U.S. operating profit dampened growth in China.

Net income climbed to $357 million, or 74 cents a share, the Louisville, Kentucky-based company said in a statement today. Excluding some items, profit of 73 cents matched the average of analysts’ projections compiled by Bloomberg.

U.S. operating profit declined 2 percent, or $3 million, because of employee costs and legal expenses, the company said. Operating profit increased 23 percent in China, and 16 percent in the company’s international division.

“It was a respectable quarter, but you’d like to see earnings contribution from all the different areas of the world,” Jack Russo, an analyst with Edward Jones & Co. in St. Louis, said in a telephone interview.

Yum increased its 2010 earnings guidance to $2.48 a share from $2.43. Analysts project the company will earn $2.48 a share in 2010, according to an average of 17 estimates.

Sales at stores open at least a year increased 6 percent in China, which accounted for 34 percent of revenue last year. The company opened 90 restaurants in the country during the quarter. Overall, Yum’s sales rose 3 percent to $2.86 billion.

Yum rose 5 cents to $46.85 at 5:20 p.m. in after-hours trading on the New York Stock Exchange. Earlier today, the shares increased 38 cents to close at $46.80. They have gained 34 percent this year.

Franchisees Sue

Yum reported net income of $334 million, or 69 cents a share, in last year’s third quarter.

U.S. franchisees of KFC, known for its fried chicken, have sued Yum, seeking increased control over the brand’s advertising following its introduction of grilled products. KFC President Roger Eaton told a judge on Sept. 23 that it would be “disastrous” for the brand if the franchisees won and would slow its decision-making ability.

To contact the reporter on this story: Burt Helm in New York at bhelm3@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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