The stock price of Yum! Brands, Inc. (NYSE:YUM) was down by nearly 1 percent to $72.23 per share a few hours prior to the release of the restaurant operator’s financial performance for the second quarter of the current fiscal year.
Before the company reported its earnings results, several analysts were convinced that the company would report better-than-expected performance this quarter despite the negative impact of the outbreak of H7H9 Avian flu last April in its business division in China.
Based on the financial statement of Yum! Brands, Inc (NYSE:YUM), the company’s earnings per share for the second quarter was $0.56 excluding special items. The result was 16 % lower than its $0.67 EPS during the same period a year ago.
Its same store sales in China dropped by 20%. The company cited that its sales performance in the country was significantly impacted by the negative publicity related to the avian flu.On the other hand, the same-store sales of Yum Restaurant International (YRI) and in the U.S. increased by 1%.
According to Yum! Brands, Inc (NYSE:YUM), its worldwide restaurant margin declined by 2.7% to 12.5%. It operating profit dropped by 20% before foreign currency translation. The decline includes a a 63% drop in China.
The company’s worldwide effective tax rate worldwide was 22.1%.
“For the total China Division, we remain on track to open at least 700 new units this year. This means we will have opened about 1,600 units over a two-year period. As KFC sales continue to recover, we expect to have solid momentum in China heading into 2014,” said David Novak, CEO of Yum Brands.
Yum Assures China Its Chickens Are Safe
Last month, Novak assured consumers in China that the brand’s chickens were safe to eat after the deadly avian flu outbreak. The company has more than 5,400 KFC and Pizza Hut restaurants in China.
Analysts Positive Overall on Yum
Zacks Equity Research anticipated that Yum! Brands, Inc. (NYSE:YUM) would likely report a positive surprise, citing that the rate of sales decline of its business unit in China moderated from 29 percent to 19 percent.
Oppenheimer analysts Brian Bittner and Michael Tamas also issued a positive conviction about the financial performance of Yum! Brands, Inc. (NYSE:YUM) this quarter. According to them, the company could beat earnings expectations due to sales recovery, tighter controls, and better operating leverage.
The analysts also stated that the restaurant operator has low earnings risk with China comps because a huge margin deleverage, already included in estimates. Bittner and Tamas raised their price target for shares of Yum! Brands, Inc. (NYSE:YUM) to from $73 to $80 per share.
Rachel Rothman, an analyst at Susquehanna, also released a positive view about the company and increased its second quarter EPS estimate to $0.59 compared with a consensus estimate of $0.54 per share. Rothman’s estimate reflects Yum! Brands better cost control in China. She also raised her price target for the stock to $73 from $67.
Yum! Brands, Inc. (NYSE:YUM) estimated a 20 percent decline in sales for the second quarter, but anticipated a positive comparable store sales in China in the fourth quarter, based on its regulatory filing last month.