Yum Brands' KFC China Sales Lead To Encouraging Start For 2016

Citi’s Gregory R. Badishkanian mentioned that Yum! Brands, Inc. YUM made a good start to the year with robust 1Q results, driven by better than expected China same store sales.

The analyst maintained a Neutral rating on the company, with a price target of $76.

Solid 1Q

Badishkanian reported that Yum! Brands’ EPS was also above expectations at 95¢, while management increased the core operating profit growth target to 12 percent for 2016.

Management also noted that the planned China separation was progressing on track to be closed by the end of the year.

The KFC Effect

Same store sales at the China division grew 6 percent, as compared to the estimate of 2.2 percent growth, driven by 12 percent comp growth at KFC. This was, however, partially offset by same store sales declined of 12 percent at Pizza Hut Casual Dining.

“Mgmt cited a successful Chinese New Year bucket promotion as a major driver of KFC's strong results,” Badishkanian said.

Restaurant margins also saw robust year on year expansion, at 540 bps, to 22.4 percent of sales, beating the estimates, driven by “sales leverage at KFC, productivity initiatives and commodity deflation, partially offset by labor inflation.”

Buybacks

Yum! Brands has bought back 13.3 million shares year to date, totaling $925 million.

“Repos since the co announced the China separation total $1.8B of the $6.2B planned capital returns prior to the separation,” the analyst noted.