Yum! Brands Serves Up Profits

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You wouldn't think fried chicken would be a huge hit in China. But last night, KFC parent Yum! Brands (NYS: YUM) reported quarterly earnings for its fiscal third quarter of 2011 with its restaurants in China stealing the show.

Total revenue jumped to $3.3 billion from last year's $2.9 billion, representing a 14% rise. Earnings per share excluding special items came in at $0.83, with Yum! CEO David Novak saying, "I'm pleased to report EPS growth of 13% in the third quarter, excluding special items. As a result of strong performance in China and other emerging markets, we confidently reaffirm our full-year EPS growth forecast of at least 12%."

Same-store sales in China jumped an impressive 19% while domestic comps dropped 3%. The company also saw its operating profit positively impacted by foreign currency translations to the tune of $32 million. A total of 331 new restaurants were opened throughout the quarter, including 138 in China. There are now 4,187 Yum!-branded restaurants in China, with 83% of them being KFC and the rest Pizza Hut.

Yum!'s stateside performance has been relatively lackluster, with domestic profits falling 16%. It's no wonder that the company has been focusing heavily overseas. The company is one of the better China plays.

Yum! has a much more prominent presence in China than such Western competitors as McDonald's (NYS: MCD) and Starbucks (NAS: SBUX) , which has China ambitions of its own. The company also competes with local casual-dining spots like China's homegrown Country Style Cooking Restaurant (NYS: CCSC) .

Recent economic data have sparked some fears that China's growth may be cooling off, which could reduce the pricing power that Yum! enjoyed during the last quarter as it raised prices to offset higher costs. If China's growth continues to slow, Chinese locals may opt out of take out.

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At the time this article was published Fool contributorEvan Niuholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Yum! Brands and Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Yum! Brands, McDonald's, Country Style Cooking Restaurant Chain, and Starbucks. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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