Yum 3Q profit up on China sales
(AP)
Updated: 2005-10-06 09:00

LOUISVILLE, Ky. - Yum Brands Inc. posted 16 percent growth in third-quarter profits Wednesday on the strength of resurgent sales in China coupled with solid U.S. performances by its Taco Bell and KFC restaurant brands. The fast-food company also raised its full-year forecast, and its shares rose more than 2 percent in late morning trading.

Louisville-based Yum reported net income of $214 million, or 72 cents per share, for the three months that ended Sept. 3, compared with $185 million, or 61 cents per share, a year ago.

Revenue rose 3 percent to $2.24 billion from $2.18 billion last year, with U.S. sales at stores open at least a year increasing 4 percent.

Analysts surveyed by Thomson Financial, on average, expected earnings per share of 70 cents on revenue of $2.24 billion.

More than a fourth of the company's profit came from its rapidly growing China division. Profit rose 32 percent to $85 million, on a 20 percent revenue increase to $360 million.

Yum spokesman Jonathan Blum said sales in the China division are making "slow but sure progress" since an ingredient problem at KFC outlets that lowered sales earlier in the year.

"The KFC brand is back to its previous strong level and we have full confidence that it will recover over time," Blum said.

Yum Chairman and Chief Executive David Novak said the company will likely exceed its target of 375 new restaurant openings in China this year. He predicted profit of at least 20 percent in the China division next year.

Yum said its third-quarter China profits were boosted by a $14 million recovery from the supplier involved in the ingredient problem. Yum said it expects to receive another "meaningful financial recovery" from the same supplier in the fourth quarter.

Meanwhile, U.S. profits dipped 4 percent to $189 million, as revenue increased 2 percent to $1.39 billion from a year ago.

Blum said Hurricane Katrina cost the company about $3 million in sales. Yum also refranchised 45 U.S. stores in the quarter, for a total of 128 through the third quarter, as part of a strategy that "gets us closer to our desired target of 20 percent company ownership," Blum said.

Blum said Hurricane Katrina cost the company about $3 million in sales. Yum also refranchised 128 U.S. stores in the third quarter, reducing its revenue, as part of a strategy that "gets us closer to our desired target of 20 percent company ownership," Blum said.

Taco Bell continued its strong year with 8 percent growth in U.S. same-store sales for the quarter. KFC was up 6 percent, while Pizza Hut was down 3 percent.

"Pizza Hut is a highly competitive category and we view this as a bump in the road," Blum said. "The beauty of our portfolio is that we have a number of brands, and some of them are up, which can offset softness at one of our other brands."

Yum's brands also include Long John Silver's and A&W All-American Food Restaurants.

Blum attributed KFC's success to the popularity of the 99-cent Snacker sandwich and the chain's emphasis on its core fried chicken products. KFC has sold more than 100 million Snackers since the sandwich was introduced in March, and the item is shaping up as "one of our best product introductions in many years," Blum said.

Yum also said it added 100 U.S. multibrand stores in the third quarter, nearly 70 percent of them converted from existing single-brand restaurants.

The company forecast fourth-quarter earnings of 78 cents per share, excluding charges, and raised its earnings-per-share estimate for the year by 2 cents, to $2.64, excluding charges. For 2006, the company estimates earnings-per-share growth of 10 percent.

Analysts estimate earnings of 78 cents per share in the fourth quarter, $2.63 for the year, and $2.89 in 2006.

Yum shares rose $1.15, or 2.4 percent, to $49.42 in late morning trading on the New York Stock Exchange. Its shares have traded in a 52-week range of $40.22 to $53.79.

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