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Yum Profit Tops Estimates as Taco Bell Bolsters Sales

Updated on

April 24 (Bloomberg) -- Yum! Brands Inc., owner of the KFC and Pizza Hut dining chains, posted first-quarter profit that topped analysts’ estimates as new menu items helped Taco Bell’s domestic sales.

Net income fell 26 percent to $337 million, or 72 cents a share, from $458 million, or 96 cents, a year earlier, the Louisville, Kentucky-based company said yesterday in a statement. Excluding certain items, profit was 70 cents a share. Analysts estimated 60 cents, the average of 25 projections compiled by Bloomberg.

Chief Executive Officer David Novak is trying to lure U.S. consumers with new food at Taco Bell as the company’s China business struggles to recover from concerns about chicken quality. Sales at U.S. stores open at least 12 months rose 2 percent in the quarter. Analysts projected a 1.9 percent gain, the average of 22 estimates from Consensus Metrix. U.S. comparable-store sales for Taco Bell climbed 6 percent.

“Taco Bell is still strong -- the cool-ranch Doritos Locos Tacos had a positive impact and carried the weaker sisters,” Larry Miller, an Atlanta-based analyst at RBC Capital Markets, said in an interview yesterday. He rates the shares the equivalent of buy.

In the U.S., Taco Bell has recently advertised Doritos Locos Tacos, a new steak burrito and dessert items to help boost sales. KFC also is rolling out new foods in the U.S., including boneless chicken, to compete with chicken nuggets at Burger King Worldwide Inc. and McDonald’s Corp.

‘Additional Problem’

It’s also good that Yum reaffirmed full-year guidance “despite the additional problem of avian flu” in China, Miller said.

Yum rose 7 percent to $68.65 at the close in New York, the biggest gain since Oct. 10. The shares have advanced 3.4 percent this year, while the Standard & Poor’s 500 Restaurants Index has increased 12 percent.

Yum reiterated its forecast for a “mid-single digit” decline for 2013 profit excluding certain items.

The recent outbreak of bird flu is curbing demand for KFC food in China, where Yum last year got about half of its revenue. KFC’s same-store sales in China dropped 24 percent in the first quarter. For the China division, they’re expected to decline 30 percent in April, the company said in the statement. Yum, which has more than 5,400 stores in the Asian nation, is scheduled to release the China division results on May 10.

‘Properly Cooked’

“We continue to remind consumers that properly cooked chicken is perfectly safe to eat,” Novak said in the statement. “Historically, the sales impact of Avian flu publicity has initially been dramatic at KFC but relatively short-lived.”

China comparable-store sales at Yum restaurants dropped 20 percent in the quarter, matching analysts’ estimates, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. Same-store sales fell 3 percent in India and rose 1 percent at other international stores.

Comparable-store sales are considered an indicator of growth because they include only older, established locations.

Revenue declined 7.6 percent to $2.54 billion in the quarter ended March 23. Analysts estimated $2.56 billion, on average.

The company has about 39,000 restaurants worldwide.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

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

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