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Yum! Brands, Inc. (YUM) Q4 Earnings Preview: Playing A Game Of Chinese Chicken

 January 31, 2013 12:17 PM

(By Rich Bieglmeier) Yum! Brands, Inc. (YUM) will announce its fourth quarter results on Tuesday, February 5, 2013 with the conference call at 9:15 a.m. ET. Wall Street anticipates that YUM will earn $0.82 for the quarter. iStock expects the Restaurants company to report earnings that will miss Wall Street's consensus number slightly. The iEstimate is $0.81 –  a 1 cent downside surprise.

YUM! Brands, Inc., together with its subsidiaries, operates quick service restaurants in the United States and internationally. As of November 29, 2012, the company operated 38,000 restaurants in 120 countries and territories under the KFC, Pizza Hut, and Taco Bell brands. It also operates approximately 450 casual dining concept restaurants in China.

[Related -Yum! Brands, Inc.(NYSE:YUM): An Attractive Stock To Own Given Potential EPS Growth]

YUM has done an excellent job of managing Wall Street's expectations.  The fast food operator has run past the consensus estimate 14 of the last 16 quarterly checkups by an average of 7.38%. The pair of misses was relatively small, falling short by 1.56% and 4.29%.; looks like iStock is out on a limb with our iEstimate.

The stock price has been a steady performer in the days surrounding earnings. Eleven of the last 16 announcement shares gained an average of 3.75%, and the typical drop was 2.58% when traders went red.

Here's the deal for Tuesday's announcement, analysts will listen keenly to same-store-sales (SSS) in China and management's forward guidance for the country. Early in 2013, YUM management announced China same-store sales fell 6% in Q4, compared expectations of a 4% decline. In Q3, SSS in China increased 6%, according to YUMs third quarter 10-Q. The decline is attributable to a Chinese government investigation into how a YUM supplier handled chicken.

[Related -Yum! Brands, Inc. (YUM): What To Watch At China Investor Day]

To give you an idea how big the chicken market is in China, earth-policy.org reports "Chinese chicken consumption is set to exceed 13 million tons in 2012, marking the first time that more chicken will be eaten in China than in the United States."

While many Americans see KFC as an American brand, Yum! Brands is predominately a Chinese company. YUM's Q3 sales tallied $3.142 billion worldwide, of which China accounted for $1.577 billion – 50.2%. For the first nine months of 2012, Chinese fast-food customers generated 44% of YUM's sales. As you can see, China is a big deal and getting bigger for the restaurants company.

In what might be a precursor to management's outlook, Citigroup's says their recent checks show same-store-sales improved in China for January. If the Chinese-Chicken scare is behind for Yum! Brands, Inc. (YUM), then traders will likely respond positively to Tuesday's news no matter what earnings look like.



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