Yum! Brands Disappoints on Earnings Ahead of China Split

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Yum! Brands Inc. (NYSE: YUM) reported third-quarter financial results after the markets closed on Wednesday. The company posted $1.09 in earnings per share (EPS) on $3.32 billion in revenue. There were consensus estimates from Thomson Reuters that called for $1.10 in EPS on $3.465 billion in revenue. The same period from last year had $1.00 in EPS on $3.43 billion in revenue.

KFC Division same-store sales increased 4%, with U.S. same-store sales growing 6% and system sales increasing 7%. At the same time, the Taco Bell Division same-store sales increased 3% and system sales increased 5%, while achieving a 21.7% restaurant margin.

Worldwide core operating profit grew 11%, with the brand divisions excluding China delivering 11% core operating profit growth in aggregate, ahead of expectations. China core operating profit grew 14%.

Just last week, Yum! announced that it is separating its China business from Yum Brands. The newly split company will now be known as Yum China Holdings. The split will take place after the close on October 31 and Yum China will begin trading on the New York Stock Exchange under the symbol YUMC. At the same time, the company announced an increase in its dividend.

The board declared an increased dividend of $0.51 per share, payable on November 4, to shareholders of record as of the close of business on October 19. This dividend represents an 11% increase from the previous quarterly dividend of $0.46 per share.

Greg Creed, CEO, commented on the earnings:

In the third quarter, I was pleased with both KFC’s and Taco Bell’s performance, each of which returned to a focus on core menu items, but in ways that were distinctive, disruptive and relevant. Both brands had accelerating same-store sales growth, despite sluggish QSR industry trends, especially in the U.S. Excluding China, our brand divisions in aggregate delivered core operating profit growth of 11%, which was ahead of our expectations. System sales for the brand divisions excluding China grew 5% in constant currency, driven by KFC where system sales grew 7% with international emerging markets up an impressive 12%.

He added:

Sales were off to a good start in the first six weeks of the quarter in the China Division. However, anticipated tougher laps in the second half of the third quarter were compounded by an international court ruling on claims regarding the South China Sea, which triggered a series of regional protests and negative sentiment against a few international companies with well-known Western brands.

Shares of Yum! closed Wednesday down 1.8% at $88.62, with a consensus analyst price target of $91.70 and a 52-week trading range of $64.58 to $91.99. Following the release of the earnings report, the stock was initially down 3.6% at $85.47 in the after-hours trading session.