Yum Brands Inc (NYSE:
), the world's largest fast food company with 36,000 restaurants in over 110 countries, is scheduled to report their second quarter 2009 results after the market opens on Tuesday, July 14.
Yum restaurants include
KFC,
Pizza Hut,
Taco Bell, Long John Silvers (LJS),
A&W, Pasta Bravo,
Wing Street, and
East Dawning. KFC, Pizza Hut, Taco Bell, and LJS are the world leaders in their respective categories. Yum is part of the
Quick Service Restaurant (QSR) industry primarily competing with
McDonald's (NYSE:
),
Domino's Pizza (NYSE:
), and
Burger King Holdings (NYSE:
).
In the first quarter of 2009 (Q1), Yum reported an EPS of $0.48 on revenues of $7,145 million, beating the consensus estimate by $0.08. The upside versus expectation was driven primarily by strong profit performance in China, strong margins in the US, and a favorable tax rate for the quarter.
For the second quarter of 2009, Yum’s EPS estimates range from a low of $0.38 to a high of $0.46, with a consensus estimate of $0.43. In the second quarter, the company is expected to have benefited from strong sales in China. KFC continues to lead the western QSR category with nearly 2,600 units, and impressive average unit volumes of $1.4 million. In China, the company is expected to have leveraged new incremental sales layers at KFC including breakfast, delivery, and multiple proteins.
Importantly, the company is continuing to generate high returns on its KFC new unit development with cash-on-cash paybacks of just over two years. Pizza Hut Casual Dining continues to be the leader in the western casual dining category with 429 units in 107 cities and its closest competitors have less than 30 units in China.
As far as other geographies are concerned, the company is expected to have maintained strong margins in the US (benefiting from more efficient operating structure, execution of new incremental sales layers and changes in ownership strategy), and good sales volume in other parts of the world. Yum's overseas businesses, other than China, will likely exceed the targeted 10% profit growth, as greater visibility on the company's strategies will drive sustainable and profitable growth.
Restaurant margins are expected to be around 25% in the second quarter. This increase in margin is primarily driven by 2008 pricing actions and moderating commodity inflation. In fact, in 2009, the company may save around $50 million just due to commodity deflation in China.
Shares are currently trading at $34.98, inching close to the 52 week high of $40.25. The company’s stock is likely to outperform the market. The stock is likely to set a new 52 week high with in 2009.
