Yum Tops Estimates as China Struggles Show Signs of Abating

Yum! Brands Inc., owner of the KFC and Taco Bell fast-food chains, posted first-quarter profit that topped analysts’ estimates after its long-struggling China business showed signs of improvement.

Excluding some items, profit amounted to 80 cents a share, the Louisville, Kentucky-based company said in a statement Tuesday. Analysts had estimated 72 cents on average, according to data compiled by Bloomberg. While same-store sales fell 12 percent in China, that was better than the 14.4 percent decline predicted by analysts. The sales tumbled 16 percent in the fourth quarter.

Yum has been trying to pull itself out of a two-year slump in China after a food-safety scare, bird flu outbreak and competition from local restaurants hurt sales. Last year, vendor OSI Group LLC was probed for altering expiration dates on meat, prompting Yum to end its relationship with the supplier. The company has been trying to bring back China’s KFC customers with new menu items, including coffee.

“Our confidence in China is bolstered by improving sales and upward momentum in customer perceptions,” Chief Executive Officer Greg Creed said in the statement. He predicted a “strong second half” for the country.

Shares Gain

The shares rose 3.9 percent to $84.04 on Wednesday in New York, the biggest gain in more than a year. They have climbed 15 percent this year, compared with a 9.1 percent gain for the Standard & Poor’s 500 Restaurants Index.

Yum reiterated its forecast that profit this year would increase at least 10 percent, reaching about $3.40 a share. Analysts are estimating $3.45 on average.

In China, where Yum gets more than half of its revenue, comparable-store sales fell 5 percent last year and 13 percent in 2013. Still, the company is pushing ahead with an expansion there. It plans to open 700 new restaurants in the country this year, adding to its more than 6,800 locations.

“Though better-than-expected comps is a positive sign, we believe that it will take more than one quarter of ‘less bad’ comps to prove out a China recovery,” Sara Senatore, an analyst at Sanford C. Bernstein & Co., said in note.

In the U.S., Taco Bell has been attracting diners with new breakfast items, such as biscuit tacos, and a mobile-phone ordering and payment application. The chain also will introduce a new customer-loyalty program later this year. Same-store sales rose 6 percent at Taco Bell in the first quarter.

Pizza Hut, meanwhile, introduced gluten-free pizzas in January, aiming to broaden its appeal. First-quarter comparable-store sales were unchanged at the chain from a year earlier.

Yum’s total revenue dropped 3.7 percent to $2.62 billion in the quarter, showing that the company’s comeback isn’t complete. Analysts had estimated $2.65 billion on average. Net income fell 9.3 percent to $362 million, or 81 cents a share, from $399 million, or 87 cents, a year earlier.

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