Yum! Brands YUM reported its Q3 earnings on Wednesday. Shares of the company are up 1%.
Below are some key highlights and takeaways from its conference call:
Operations and Growth:
• Despite the recent supplier
incident in China which has impacted China sales and reduced our full-year
EPS outlook.
• I'm absolutely confident in Yum! Brands ability to deliver
strong sustainable growth in the years ahead.
• We fully expect China to fully recover. KFC global is having a strong year
and building momentum.
• Taco Bell has successfully and profitably introduced
breakfast and is now expanding in the United States with new unit growth.
• Pizza Hut global should have a strong 2015 led by an expected U.S. turnaround
which is in its early stages.
• For the third quarter, earnings per share increased 3% excluding special
items.
• We clearly had unexpected negative sales in China and continued soft
performance at our Pizza Hut Division.
• We delivered
solid results at our KFC and Taco Bell divisions and had the benefit of
overlapping a higher tax rate in the prior year.
• Importantly, our China sales
are on the path to recovery and we expect a strong back bounce back in 2015.
• First half EPS growth of 27% was driven by particularly strong results in
China where system sales grew 19% and we delivered restaurant margins of
nearly 20%.
• As a result, we're
now estimating full-year EPS growth of 6% to 10% prior to special items.
• Today, we have nearly 1,200 restaurants in over 300 cities in China for Pizza
Hut.
• Looking at Pizza Hut Casual Dining, our average unit volumes have dipped
slightly below $1.6 billion, and we have restaurant margins of about 19%.
• KFC, we have restaurant margins of about 15%
on depressed average unit volumes of 1.4 million.
• Depressed average unit volumes of 1.4 million.
China:
• On July 20, an undercover investigation was
televised in China depicting alleged illegal actions by employees of Chinese
foodservice supplier.
• However, given
our size and category leading positions in China, our sales were
disproportionately impacted because we were mentioned with the same media
weight as our major competitor.
• We also began taking unprecedented
measures to further strengthen our supply chain practices in China to prevent
and identify fraudulent and deceptive behavior by suppliers going forward.
• We're now requiring standards for suppliers in China to install
closed-circuit televisions and implementation is underway.
• It's extremely
difficult to prevent a company from deceiving us if they resort to illegal
activities.
• We will learn from this incident and are committed
to developing even better quality assurance processes as we move ahead.
• At KFC China, we have over 4,600 restaurants in nearly 1,000 cities across
the country, which is more than twice our nearest competitor.
Guidance:
• We firmly believe we're building momentum behind
major initiatives around the world that will drive strong, sustainable growth
in 2015 and beyond.
• Finally, we're investing for the long term and developing great brands in
India, which will drive substantial future growth for Yum!.
• KFC will be
bigger in units than McDonald's by the end of the year.
• Pizza Hut sales and
delivery unit economics are getting stronger and more competitive with
Domino's.
• Taco Bell, early results are encouraging with plans are
accelerating the pace of development.
• Now, to sum things up, in spite of our short-term issue in China, the
fundamentals of Yum!'s growth model remains extremely compelling.
• Furthermore, we have over 40,000 restaurants around the world that have
significant capacity to grow.
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