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Yum! Brands Delivers A Tasty Quarterly Result

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After the closing bell on Monday, Yum! Brands (NYSE: YUM) reported its fourth quarter results. The company announced an EPS of $0.86, beating the consensus estimate of $0.80. Revenue of $4.17 billion missed the consensus estimate of $4.08 billion.

Same-store sales declined overall by four percent in China. KFC same-store sales fell four percent in the quarter and 15 percent in fiscal 2013, as the company failed to appropriately address concerns over antibiotics used in its chicken. Additionally, Chinese chicken sales have been “jittery” because of a new round of bird flu concerns.

Same-store sales were flat in the U.S. and grew one percent at Yum! Restaurants International, which excludes the U.S. and China.

Yum! Brands management said that it is confident to deliver at least 20 percent EPS growth in 2014, re-establishing its track record of double-digit EPS growth.

“While 2013 was a challenging year, I'm pleased to report continued progress as we enter 2014 with fourth-quarter EPS growth of 4%, excluding Special Items,” said David C. Novak, Chairman and CEO of Yum! Brands in a press release. “More importantly, with the decisive actions we've taken to strengthen our company across the board, we are well positioned to deliver double-digit EPS growth in 2014 and the years ahead.”

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Morgan Stanley: 4Q win due to China margins

John Glass, analyst at Morgan Stanley believes that Yum! Brands reported a strong quarterly result, despite the company worrying a lot of investors over its Chinese regulatory and food safety issues.

“Against worried expectations, 4Q beat on the bottom line, driven by better China restaurant margins (notable labor) and favorable G&A laps,” Glass wrote in a note to clients. “In all, we think results are enough to arrest the recent slide in shares and pre-mature speculation that estimates would be cut this early in the year.”

Shares are Equal-Weighted with no price target assigned.

Deutsche Bank: Yum! delivered when least expected

Jason West, analyst at Deutsche Bank believes that Yum! Brands delivered a positive result when the general sentiment was unfavorable going in to earnings.

“Given the combination of better-than-expected profitability in China, reiteration of annual guidance, and muted expectations going into the print (YUM shares -12.5% YTD vs. S&P -5.8%), we believe stock is likely to react positively,” said West in a note to clients. “As expected, the co. made no mention of current sales trends in China in the release, though the tone of the release seemed relatively upbeat.”

Shares are Buy rated with a $100 price target.

Credit Suisse: Bird flu concerns persist

Karen Holthouse, analyst at Credit Suisse believes that Yum! Brands could deliver a strong performance in China, but it would be contingent on the severity of the ongoing bird flu concerns.

“Assuming Yum! Brands can make progress on the top-line, this gives credibility to guidance for 40 percent China profit growth in 2014,” said Houlthouse in a note to clients. “That said, China performance (and sentiment) is also driven by the top line, and commentary on QTD trends/the impact of the Avian flu on the [post earnings conference call] could become the more important data point.

“Given the volatility in two year trends through 4Q and the risk of Avian flue disrupting Chinese New Year-related travel, our bias is to be relatively cautious on near-term comps,” Holthouse added.

Shares are Neutral rated with a $79 price target.

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Bank of America: Concerns over lack of China guidance

Joseph Buckley, analyst at Bank of America believes that Yum! Brands decision to omit China guidance could be a concern.

“Yum! Brand's earnings release omitted mention of prior guidance for China operating profit growth of at least 40 percent,” said Buckley in a note to clients. “This is interesting given Tyson Food's comments last week about demand for chicken in China being soft and new avian flu news in recent weeks, including reports of 20 deaths. But it is hard to imagine Yum achieving its at least 20 percent EPS growth target without China being up much very significantly.”

Shares are Neutral rated with an $82 price target.

Stifel: China fears overblown

Paul Westra, analyst at Stifel believes that shares of Yum! Brands should be bought following the company's earnings, which topped the analysts' estimates and management has made no changes to its Chinese guidance.

“We expect a best-case scenario for Yum! Brands shares, which is that management will likely acknowledge a short-term negative impact on sales momentum in China from the latest Avian Flu breakout, but one that will likely prove to be smaller and more temporary than many investors feared,” said Westra in a note to clients.

Shares are Buy rated with a $95 price target.

Latest Ratings for YUM

Nov 2017UBSMaintainsBuy
Nov 2017BMO CapitalMaintainsMarket Perform
Nov 2017Morgan StanleyMaintainsEqual-Weight

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Posted-In: Bank of America China Avian Flu China Bird FluAnalyst Color Earnings News Price Target Analyst Ratings


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