2012 was an incredible year for Yum! Brands, Inc. (NYSE:YUM). The company made real headway in the Chinese market and earned some serious respect for doing so. A food safety scare set the company’s efforts in the country back a good deal, however, and it is still scrambling to recover fully. The firm will report earnings after the market closes today.
Analysts following the fast food giant are expecting the company to earn 93 cents per share by consensus in this afternoon’s release. The company is expected to bring in revenue of $3.5 billion for the same period. In the September quarter of 2012, the firm managed to earn 99 cents per share on revenue of $3.6 billion.
Yum! is all about China
Half of Yum! Brands, Inc. (NYSE:YUM) business is done in China, making it the single most important market for the company. McDonald’s Corporation (NYSE:MCD) and Yum! Brands dominate the Chinese market for Western fast food and Yum! is in the lead in the country. Problems in the last year have caused trouble, though investors haven’t been shaken all that much.
Last year, Chinese Food Safety authorities began an investigation into Yum Brands, Inc. (NYSE:YUM) restaurant KFC. The probe resulted from a news report suggesting the use of excessive antibiotics by some of the chicken farmers who sold to the restaurant. The probe, and the resultant damage to the KFC brand, made investors take a closer look at the company’s Chinese business.
The biggest worry for Yum! Brands, Inc. (NYSE:YUM) investors is that the company’s momentum in China is slowing. If that theory bears out, investors will have a hard time justifying the 23 times earnings valuation on the company.
Yum! Brands performance
Brand trouble is probably not the only thing hurting Yum! Brands, Inc. (NYSE:YUM) growth in China. The Chinese consumer economy is not functioning as it did in years past, and many consumer facing firms are reporting the changes. Yum’s reliance on China for its bottom line means that it is particularly susceptible to changes in the country.
In the last twelve months, shares in Yum! Brands, Inc. (NYSE:YUM) have gained just over 7 percent. The company’s stock has trailed the major indices on China worries despite beating earnings expectations in each of the last four quarters.