Yum! Brands, Inc. (NYSE:YUM) dropped its earnings report on Tuesday afternoon after the market closed on Wall Street. The KFC operator showed earnings per share of $0.87 for the quarter it records as the first of 2014. Revenue in the period came in at $2.72 billion. On today’s market shares in Yum trended upwards and finished trading at $77.48.
Businessweek surveyed 21 analysts following Yum! Brands, Inc. (NYSE:YUM) as the company headed into the delivery of earnings this afternoon. The analysts were looking for earnings of 84 cents for the three month period by consensus. Revenue for the first quarter was expected to come in at $2.8 billion. In the same three months of 2013 Yum managed to earn 70 cents on revenue totaling $2.5 billion.
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China still land of promise
This afternoon’s earnings report demonstrates the importance of China to Yum Brands, Inc. (NYSE:YUM) business. The company is dealing with an American market saturated in fast food, and increasingly suspicious of the substances involved. The response of management has been to look outward, and in particular to the promised land that China forms in the minds of so many companies.
With its trio of big brands, KFC, Taco Bell and Pizza Hut, Yum! Brands, Inc. (NYSE:YUM) is to continue to expedite its growth in China and buffer its earnings with the proceeds. Competition in the restaurant sector is already fierce in the country, however, and recent setbacks have demonstrates the unforeseen circumstances that can lead to prolonged difficulties in foreign markets.
Yum Brands growth is weighing heavily
Expectations of growth are what drives huge gains in stock prices, and Yum! Brands, Inc. (NYSE:YUM) has offered little to except itself from that trend. The company’s stock was trading at close to 33 times 2013 earnings heading into the release of this report. That premium is there to price in expected growth, and any deviation from that path is likely to result in problems for the company’s shareholders.
In the last twelve months shares in Yum! Brands, Inc. (NYSE:YUM) have stumbled. The company’s shares gained just 18% while the S&P 500 managed a more than 20% gain. A growth company is generally supposed to beat the market, and investors would have been better off with less risk in the last year.
Yum! Brands, Inc. (NYSE:YUM) is rumored to be emerging from its slump, however, and last year’s problems, which were caused by setbacks in China, seem to be less impressive this year. Investors willing to bet on the company as it tries to beat McDonald’s Corporation (NYSE:MCD) at home and implant Western style fast food market in China will need to be tolerant of risks, and of inevitable setbacks.