Yum! Brands Earnings Preview: Signs of a Turnaround?

, which is slowly recovering from last December's KFC chicken scare and subsequent avian flu fears in China, is scheduled to report its second-quarter results Wednesday, July 10, after the markets close. Yum! Brands makes much of its revenue in China, and investors have been keeping a close eye on developments there. Overall revenue dropped significantly in the first quarter, but investors will want to see some signs of a rebound in the most recent period.

Analysts on average predict that Yum! Brands will report that revenue for the second quarter totaled $2.93 billion, or more than seven percent lower year-over-year. Earnings of $0.54 per share are also in the consensus forecast. That would be down from $0.67 per share in the comparable period of last year. In the past 60 days, that earnings per share (EPS) estimate has remained unchanged. And note that Yum! Brands fell short of consensus EPS estimates in just one of the past eight quarters. The first-quarter earnings of $0.70 per share beat the street view by more than 16 percent. The company attributed the positive surprise in first-quarter earnings to strength in areas other than China. Yum! Brands said operating profit grew 19 percent in its international division and five percent in the United States. The share price rose seven percent following the report.

Looking ahead to the current quarter, analyst so far see a five percent decline in EPS to $0.94, relative to the previous year, as well as revenues that are essentially flat year-over-year at $3.59 billion.

Yum! Brands operates some 39,000 quick-service restaurants in more than 120 countries under the KFC, Pizza Hut and Taco Bell brands, as well as some casual dining concept restaurants in China. The company is a Fortune 500 component that was founded in 1997, and its headquarters are in Louisville, Kentucky. The company has a market capitalization more than $32 billion. David C. Novak has been the chief executive officer and executive chairman since January 2001. Competitors include

,

and

. All three are forecast to report marginal growth in second-quarter earnings. Smaller AFC, which operates Popeye's Chicken restaurants, is expected to post a more than 14 percent rise in revenues.

During the three months that ended in June, Yum! Brands saw analyst upgrades following its earnings report, opened its first KFC location in Mongolia, said its sales decline in China was slowing and announced it was testing "Power Protein" menu items at some Taco Bell restaurants.

Yum! Brands has a long-term EPS growth forecast of more than 11 percent, but its price-to-earnings (P/E) ratio is greater than the industry average. The return on equity is more than 67 percent and the return on investment is more than 34 percent. The number of Yum! Brands shares sold short, as of the mid-June settlement date, represented less than two percent of the float. That was a more than 17 percent decline in the short interest in the previous two periods. Days to cover was about two. Of the 23 analysts surveyed by Thomson/First Call who follow the stock, 12 recommend buying shares, while only one analyst rates the stock at Underperform. The analysts' mean price target, or where they expect the stock to go, is about the same as the current share price. That means the analysts see no potential upside at this time. The share price has risen about five percent in the past two weeks, and it is now more than 10 percent higher than it was six months ago. The share price is above the 50-day and 200-day moving averages. Over the past six months, the stock has narrowly underperformed the broader markets, but its performance has been in line with that of McDonald's.