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Yum! Continues Climb on Better-Than-Expected Sales in China

Yum! Continues Climb on Better-Than-Expected Sales in China

On Monday, Benzinga reported Yum!'s (NYSE: YUM) after-hours spike of over seven percent. The spike was due to word of better-than-expected February sales in China.

For the first quarter, same-store sales were down 20 percent. This was largely impacted by a steep decline in KFC sales, as the brand saw a 24 percent drop. Pizza Hut Casual Dining sales dropped a modest two percent during the quarter.

Yet, in February, same-store sales grew two percent, boosted by a 13 percent increase at Pizza Hut Casual Dining.

And, sales at KFC were flat for the month. While this wouldn't typically be cause for celebration, investors may remember the poultry scare of late 2012. The scare caused a sharp decline in same-store KFC sales in the final weeks of 2012 and into January. However, it appears to have subsided substantially, which is great news for both the company and its shareholders.

Zacks Undercooks Yum!?

On February 26, Zacks downgraded Yum! from Neutral to Underperform, citing the dim outlook for the company's China division.

Yet, with a positive, albeit unexpected, February sales figure in the Asian country, Zacks may have acted prematurely. It will be interesting to see just how much faith investors put back into Yum! after the positive news from China. If the initial reaction is any indication, Zacks may have jumped the gun on the downgrade.

Yum! Culls Chinese Producers

A February report by the Chicago Tribune noted that Yum! unveiled a new set of quality-control guidelines in an effort to rebuild trust in its brand due to the poultry scare. According to the report, Yum! will boost oversight and impose stricter requirements on its poultry producers.

On that note, the company parted ways with over 1,000 small producers in its network, citing difficulty in regulating those businesses, as notes the Chicago Tribune.

Sweet-and-Sour Chicken

According to Reuters, Chinese bloggers posted three billion “overwhelmingly negative” comments about KFC between December 18 and January 18. Of course, such comments were in reaction to Chinese media reports about the poultry scare that began in late December.

The good news for Yum! is that the rate of negative posts has dropped substantially since then. However, Reuters reports that a Chinese bloggers still posted one billion negative comments about the brand between January 18 and February 18. In other words, Yum!'s KFC brand isn't out of the cage just yet across the Pacific.

A Growing Appetite for Yum! on Wall Street

Yum! has hovered in the mid-$60s for most of the past three months in the aftermath of the poultry scare. However, in the past week, the stock has climbed into the high-$60s.

The surge continues today as the positive monthly sales figures in China have boosted the stock above $69. It is at its highest point since the Chinese public first learned of the contaminated poultry.

Yum! is up over two percent on Tuesday.

Posted-In: Kentucky Fried Chicken KFC Pizza Hut Pizza Hut Casual DiningNews Best of Benzinga


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