Making Chicken, Pizza, and Money -- Lots of Money -- in China
Second-quarter earnings for Yum! Brands (NYS: YUM) came in earlier this month, and while they're a bit of a mixed bag, in the end they net out rather nicely for investors. Here's the good, the bad, and the bogus of it all.
Yum! owns and operates fast-food and casual-dining stalwarts Taco Bell, KFC, and Pizza Hut. Thanks to the latter two, growth abroad is where we find the good news at Yum!. That's particularly true in China, where operating profit grew 25%, same-restaurant sales were up 18%, and 99 new restaurants opened. Less spectacular, but still notable, operating profit internationally (excluding China) grew 11%, same-restaurant sales were up 2%, and 142 new restaurants opened.
For the bad news, look no further than here at home, where Yum!'s operating profit was down 28% and same-restaurant sales were down 4%. In the U.S., as Taco Bell goes, so goes Yum! -- 60% of the company's domestic profit is brought in by the ubiquitous taco maker, which is trying to recover from a bout of bad publicity surrounding a lawsuit about the company's meat.
Which brings us to ...
In January, a California woman sued Taco Bell over the contents of its seasoned beef, claiming it was mainly meat filler. Mincing no words and sparing no bespoke-suited attorneys, Taco Bell responded quickly and aggressively by threatening a countersuit against the woman for "false statements."
She quietly and voluntarily dropped her claim shortly thereafter. Too late. The damage was done, and customers began staying away.
Yum! still a meal fit for a Fool
"It usually takes about six months to fully recover from food-related issues," said Yum! CEO David Novak on a recent conference call. The company expects Taco Bell's same-restaurant sales to still be in the negative come the third quarter, but better than the 5% decline reported for the second.
Here's the upshot of it all, fellow Fools: While Yum! Brands might continue to struggle for a while in the U.S., it will likely continue its relentless, chicken-frying, pizza-making, revenue-generating march across China, offering investors plenty of upside in the process.
Keep a peeled-eye on Yum! Brands. Add it to your watchlist.
At the time this article was published Fool contributorJohn Grgurichloves Taco Bell seven-layer burritos, but owns no shares of Yum! Brands or any of the other companies mentioned in this article. The Motley Fool owns shares of Starbucks and Yum! Brands.Motley Fool newsletter serviceshave recommended buying shares of Starbucks, Yum! Brands, and McDonald's. 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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