Tonight on CNBC’s MAD MONEY, Jim Cramer hosted Doug Novak, CEO of Yum! Brands Inc. (NYSE: YUM), to discuss the economy and the company’s place in casual dining during a major economic slowdown. With brands like Taco Bell, KFC, and Pizza Hut, Cramer wanted to see what was under the hood here. He said the stock is trading at only 14-times earnings and was down over 7%today. He noted a same store sales growth slowdown and squeezedmargins. Cramer has been very positive on this stock before and never really changed his stance before today. This was also one of our own New Defensive Stocks with a growth flare for 2008.
Mr.Novak said consumers continue to eat their food and its affordablemenu is well positioned to achieve consistent earnings growth. Novaksaid Yum! can weather the ups and downs.
Cramer asked about disappointing same store sales and margins. The company opened over 500 spots in China for thesecond year and it only has 2 restaurants per million people there. Novak said the slowdown in China was not as bad as the U.S.
Novak also said it was too early in the game to talk about marginexpansion since the food costs went up a record this amount, but he ishopeful that it comes into play in 2009.
On Russia, Novak did say there are many risks and they have gone inwith a focused strategy and a strong partner. He did note that theywould be cautious there in Russia.
On the international side, Yum International has opened over 800 stores this year.
On Obama and labor costs, Novak said he would only worry about what hecan control. As far as fighting the eat in home crowd concept right now, Novak said that the company is also taking Pizza Hut into pastaand chicken, and expanding more chicken options at KFC. He argued Yum is thenumber one value chain in the U.S.
Cramer said he wants to wait and see on the treacherous market and whenit gets a 4% dividend yield he won’t do anything but close his eyes andbuy the stock.
Jon C. Ogg
November 5, 2008