Yum Brands' China Business Gaining Strength Ahead of Spinoff
22 April 2016 - 1:15AM
Dow Jones News
By Julie Jargon and Maria Armental
Yum Brands Inc.'s China business is gaining strength just as the
company is planning to spin it off.
The China business, which accounts for about half of the
company's revenue, has been a volatile part of the Yum portfolio,
which also includes the KFC, Pizza Hut and Taco Bell brands in the
U.S. and internationally. It had been hurt by food-safety scares,
stiffer competition and some missteps in its Pizza Hut brand
there.
The KFC China business has largely bounced back, posting 12%
same-store sales growth in the quarter thanks, in part, to chicken
bucket promotions related to Lunar New Year celebrations. Overall,
the China business posted a 6% same-store sales increase, beating
analyst's expectations for a 2% increase. It was the China
division's third consecutive quarterly increase in that metric.
As a result, the Louisville, Ky., company raised its projections
for core operating profit growth to 12%, adjusted for currency
conversions, from its previous target of 10% growth.
In addition to plans to spin off the once fast-growing China
business, which the company said is on track to be completed by
year-end, Yum is considering selling a stake in the business, The
Wall Street Journal reported last month, citing people familiar
with the situation.
Yum Chief Executive Greg Creed declined to comment on the
possibility of selling a stake in the China business.
"We are fully committed to maximizing the value of the China
business for all of our shareholders," Mr. Creed said during the
company's earnings call on Thursday. "We will carefully consider
all options to achieve that goal."
As part of the planned spinoff, Yum has pledged to return $6.2
billion to shareholders before the separation is complete.
Taco Bell, normally the bright spot of the Yum portfolio, posted
just 1% same-store sales growth, below expectations for 3% growth.
The company Thursday said Taco Bell was hurt by hamburger chains'
value promotions in the quarter.
"One percent same-store sales growth is not what we're used to
seeing at Taco Bell," Mr. Creed told investors.
For the period ended March 19, Yum reported a profit of $391
million, or 93 cents a share, compared with $362 million, or 81
cents a share a year earlier. Excluding certain items, including
costs tied to the planned separation of the China business, profit
rose to 95 cents a share from 80 cents a year earlier. Revenue was
relatively flat at $2.62 billion.
Yum shares were up 0.7% in Thursday morning trading.
Write to Julie Jargon at julie.jargon@wsj.com and Maria Armental
at maria.armental@wsj.com
(END) Dow Jones Newswires
April 21, 2016 11:00 ET (15:00 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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