Will YUM! Brands Outperform Alcoa In the 3Q Earnings Season?

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Alcoa Inc. (NYSE:AA), the aluminum giant will kick off the third quarter earnings season along with YUM! Brands, Inc. (NYSE:YUM), the world’s largest restaurant chain.

Will YUM! Brands Outperform Alcoa In the 3Q Earnings Season?

Analysts believe that YUM! Brands, Inc. (NYSE:YUM) will outperform Alcoa’s third quarter earnings report. Analysts expect that the parent company KFC, Pizza Hut and Taco Bell restaurants to report an outstanding financial performance with 17 percent increase in net income to 97 cents per share and to post 11.3 percent jump in revenue to $3.66 billion year-over year respectively, based on data compiled by Factset.

During the second quarter, Yum! Brands, Inc. (NYSE:YUM) reported 67 cents earnings per share out of $ 3.16 billion revenue. The company missed the consensus average estimate of analysts of 70 cents earnings per share during the previous quarter. Although the company fell short in meeting the expectations of analysts, the Kentucky-based restaurant chain company managed total revenue rose by 12 percent year-over-year due to the 27 percent sales growth in China.

Analysts expect Yum! Brands, Inc. (NYSE:YUM) that the company’s growth during the third quarter would come from China as the company opened 160 new restaurant units in the country. The company aims to open 700 units by the end 0f 2012. KFC and Pizza Hut dominated its competitors in China including McDonald’s Corporation (NYSE:MCD).

Greenlight Capital hedge fund manager David Einhorn recently expressed his opinion that Chipotle Mexican Grill, Inc. (NYSE:CMG) faces strong competition against Taco Bell. According to Einhorn, Taco Bell has an advantage because it has more locations and offers lower prices and faster service. He also noted that the Cantina Bell menu was successful, and Chipotle might lose customers to Taco Bell.

On the other side of the coin, analysts are less enthusiastic on Alcoa Inc. (NYSE:AA)’s third quarter earnings report as the company suffered alongside the slow economic growth. Wall Street analysts expect the aluminum giant to report earnings per share of one penny (1 cent) $5.6billion revenue as the global economy remains sluggish.

During the second quarter, the company reported revenue of $5.9 billion slightly lower than its revenue during the first quarter. Its operating income declined significantly from $105 million to $61 million during the previous period.

Analysts attributed the continues decline of Alcoa Inc. (NYSE:AA)’s revenue on the ongoing financial crisis in the European region, slowdown of the Chinese economy and the different economic issues affecting the economy of the United States, which drove the demand and price of the aluminum downwards particularly in July and August.

A Forbes analysis cited that Alcoa would face challenges in the near-term, but noted that its long-term fundamentals are strong. Alcoa’s sales growth is expected to be pushed by its restructuring initiatives of the company, and development of high-end products particularly for the automotive and aerospace industries.

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