The parent company of Pizza Hut, KFC and Taco Bell, Yum! Brands, Inc. (NYSE:YUM), will be announcing its third quarter results on October 9, after the closing bell. Zacks’ research estimates an EPS of 97 cents per share on revenue of $363.4 million for the third quarter.
Kentucky-based Yum! Brands, Inc. (NYSE:YUM), second quarter adjusted earnings of 67 cents per share were well below the 70 cents estimates from Zacks. For the second quarter, company’s earnings improved slightly by 1 percent on a yearly basis. On a reported basis, Yum! Brands, Inc. (NYSE:YUM)’s quarterly earnings were 69 cents per share, up 6% year over year. Yum! Brands, Inc. (NYSE:YUM) revenues for the period jumped 12 percent over the same period last year. Much of the increase in revenues was fuelled by a 27percent increase in the China division, as well as 7 percent and 1 percent upside in the U.S. and Yum! Restaurants International (YRI) division.
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Yum! Brands, Inc. (NYSE:YUM)’s performance in the U.S. will depend solely on the strength of Taco Bell, as it accounts for more than 60 percent of the total U.S. earnings. Taco Bell posted a 13 percent gain in the second quarter, and a 6 percent growth in the first quarter. The huge success of the Doritos Locos Tacos’ launch paved the way for Taco Bell in the U.S.
Another area of concern will be the performance in China, where the company generates about 45 percent of its profits. The report expects a downside risk “giving it significant exposure to fluctuations in that market. We see key downside risks as a stronger USD, slower Chinese consumer demand, and input cost volatility”.
Deutsche Bank gives a ‘Hold’ rating to Yum! Brands, Inc. (NYSE:YUM), as it believes that weak demand in China and pressured margins could pose a downside risk for the stock. “However, we remain cautious on the stock, as we believe risks around China comps and margins are weighted to the downside, given weakening econ. growth, softer consumer conf., and accel. unit growth (cannibalization risk). Hold”. The reports expect the EPS of $0.98 with revenues of $3.68 billion.
Deutsche Bank lists a few possible threats that could limit the performance of Yum! Brands, Inc. (NYSE:YUM) in the year 2013. Those are: macro uncertainty in China, 2) roll-off of China pricing, 3) risk of resurgence in commodity prices, and 4) tough compares in the US (the reverse of last yr).
The quick service restaurant company remains on track to achieve its annual earnings per share growth target, through unit development, comparable-store sales growth, revitalization of the core brand of the U.S. Taco Bell, and share repurchases, as well as dividend payments. However, stiff competition from other similar operators, increased tax rates for full-fiscal 2012, slowdown in European economies, slowdown in China, wage inflation, and margin pressure could pose as near term offsets.