Yum China Tops Estimates in Inaugural Earnings as KFC Shines

  • Pizza Hut chain, meanwhile, performs worse than expected
  • Fast-food company spun off from U.S. parent in October

Pedestrians walk past a Yum! Brands Inc. KFC restaurant in Shanghai.

Photographer: Qilai Shen/Bloomberg

Yum China Holdings Inc., the Chinese fast-food company that was spun off from its U.S. parent in October, topped earnings estimates in its inaugural quarterly results with the help of its growing KFC chain.

The company posted profit of 17 cents a share, excluding some items, compared with an average estimate of 10 cents. Same-store sales growth at KFC helped bolster results, while its Pizza Hut division performed worse than expected.

The results show Yum China had a respectable start as an independent company, even as it faces headwinds. Its pizza chain continues to decline as local competitors gain market share. The company added 575 outlets last year, with more than half that in the fourth quarter as it banks on aggressive expansion to keep it ahead of other U.S. chains in China.

“We believe the majority of our restaurants in China are yet to be built,” Chief Executive Officer Micky Pant said in a statement. “Right now, our top priority is consistently delivering positive same-store sales growth.”

China Stores

Yum China, which has over 7,500 outlets in China as of end 2016, has plans to add about 600 stores in the country annually. McDonald’s Corp, which agreed to sell a controlling stake in its China and Hong Kong operations last month, is adding more than 1,500 stores in the country over the next five years, while Starbucks Corp is growing at 500 outlets annually.

Yum China fell 2.4 percent to $28.10 in New York on Tuesday, the most in a month, before the results. The stock has gained 7.6 percent this year, compared with the 5 percent gain in Yum! Brands Inc.

KFC’s same-store sales grew 1 percent in the fourth quarter. Analysts had estimated a 0.4 percent gain, according to Consensus Metrix. Pizza Hut declined 3 percent, missing the 2.3 percent growth projection. Combined, the company’s sales were flat in the period.

Pizza Hut’s performance in China has been sluggish in recent years as local competitors take market share and middle-class consumers increasingly seek out more upmarket dining experiences.

Yum China also approved a $300 million buyback program and appointed two key executives. Joey Wat will serve as chief operating officer, while Johnson Huang will become general manager of the KFC business.

— With assistance by Rachel Chang

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