Yum Brands Earnings Squeak Past Estimates

Yum Brands restaurants
Yum Brands restaurants

Yum Brands (YUM) narrowly beat Wall Street's estimates by reporting an adjusted profit of 58 cents a share, four cents more than estimates.

Yum, which owns Taco Bell, Pizza Hut and KFC, reported a second-quarter sales increase of 4%, including a 15% sales increase in China. It reported a 1% drop in sales during the first quarter, and for the year it's now predicting a 12% earnings per share increase.

Wall Street expected Yum to earn 54 cents per share on revenue of $2.54 billion. In the same quarter last year, it reported earnings of 50 cents per share on revenue of $2.48 billion.

"Our primary focus is to drive same-store-sales growth during the balance of year given the challenging consumer environment," said YUM chairman and CEO David Novak. The U.S. same store sales were flat in the second quarter, due to be a 7% decline at KFC. During the most recent quarter, the Louisville, Ky.-based company has been pouring money behind a $10 pizza marketing campaign.

Growing Rapidly in China

Yum's international growth, particularly in China, has tempered a downward trend in U.S. sales. The company has more than 3,500 stores in China and has plans to open about 475 new restaurants there and about 900 new units in the international markets in 2010. Yum says it'll eventually open more than 20,000 restaurants in the world's fastest-growing economy. KFCs makes up about 75% of the outlets in China.

In the U.S., Yum's profits remain stagnant due to a slowly recovering economy and increased "value meal" competition from other fast-food chains. Taco Bell accounts for 60% of the company's U.S. profits.

David Palmer, UBS senior restaurant analyst, told CNBC that the stock will increase the second half of the year. At the end of June, he set his share-price target between $47 and $49.

"The key metrics for this company are its same store sales and China, which has become its more profitable division," Palmer said. "If they do well, the stock will go higher."

On Tuesday the stock finished up nearly 2% or 84 cents a share to close at $41.71. It dropped in after-hours trading by 3% shortly after releasing its earnings.