Photographer: Daniel Acker/Bloomberg

Yum Shares Gain as Fast-Food Giant Weathers Turmoil in China

  • KFC owner raises profit-growth forecast for the year
  • Yum says it’s on track to spin off Chinese operations

Yum! Brands Inc. rose the most in more than four months after beating second-quarter profit estimates and raising its forecast, helped by the KFC chain’s better-than-expected performance in China.

The shares climbed as much as 5.7 percent to $90.60 on Thursday in New York, the biggest intraday gain since March 1. The shares’ 3.9 percent advance as of 9:59 a.m. was the second-largest increase in the Standard & Poor’s 500 Index.

Yum, which is spinning off its Chinese business to focus on its domestic operations, saw KFC’s sales momentum continue in the Asian country, according to Chief Executive Officer Greg Creed. The company has been coping with a slowing economy and more competition in China, tamping down expectations for the region.

Net income rose to 75 cents a share, excluding some items, the Louisville, Kentucky-based company said in a statement Wednesday. On average, analysts projected 74 cents a share, according to data compiled by Bloomberg.

Yum, which also owns the Taco Bell and Pizza Hut chains, said it now expects operating profit to rise by at least 14 percent this year, compared with a previous forecast of 12 percent.

U.S. Slowdown

Still, total revenue fell short of analysts’ estimates last quarter. Sales decreased to $3.01 billion, compared with a $3.09 billion projection. Same-store sales -- a key benchmark -- fell 1 percent at Taco Bell. According to Consensus Metrix, analysts had predicted a 1.9 percent gain for the Mexican-themed chain, which is concentrated in the U.S.

“Challenging industry conditions in the U.S. contributed to soft sales results,” Creed said.

At KFC, which has revived the Colonel Sanders advertising campaign and added $5 meal deals in a bid for U.S. customers, same-store sales gained 2 percent. Analysts estimated growth of 2.3 percent.

A resurgent McDonald’s Corp. may have hurt Yum’s U.S. results in the second quarter. The burger chain, which has more than 14,000 domestic locations, has been aggressively touting meal deals, along with all-day breakfast fare.

China Spinoff

Facing activist pressure, Yum said last year that it would separate its Chinese business from the rest of the company. The fast-food operator had seen problems there, including food-safety scandals, better local competition and a worsening economy. Since the announcement in October, KFC has performed better, but Pizza Hut has continued to turn in sluggish results. The pizza chain’s same-store sales have turned positive in recent weeks, Creed said on Wednesday.

“They’ve made progress in China but that’s really from hitting rock bottom a couple of years ago after their food safety scandal,” said James Roy, a senior analyst at China Market Research Group. “They face a larger issue in the market with Chinese consumers becoming more health-conscious and moving away from fast food.”

The company reiterated that the spinoff will occur around Oct. 31. Negotiations over the sale of a stake in the operations have taken longer than expected, people familiar with the matter said last month. That has raised concerns that the process will get delayed.

“We plan to return a significant amount of capital to shareholders both prior to and after the spin,” Creed said in Wednesday’s statement.

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