Yum! Brands Inc. (YUM) reported earnings on Tuesday, April 23rd after market hours. The company revealed that it earned $0.70 per share in the period on revenue of $2.53 billion. Analysts were expecting earnings of $0.60 per share on revenue of $2.56 billion. Earnings for 1Q2012 were $0.76, denoting an EPS drop of 8% year over year. Operating profit increased 5% in the US and 19% at Yum! Restaurants International.
China does not seem to have reacted as badly to the stories surrounding the company’s ingredient use as had been feared according to these earnings results. Yum! Brands should be able to continue to consolidate its growth in the country, having restored confidence in its business practices.
Moving forward, Yum! Brands expects some continued volatility in sales in China with news of Avian flu emerging, though the majority of fear surrounding their poultry has subsided. Historically, the sales impact of Avian flu publicity has initially been dramatic at KFC but relatively short-lived. 88% of new restaurants opened were in emerging markets like China and India. The company has been aggressively following a marketing campaign assuring consumers of the quality of Yum! Brands’ food. The company will continue its plan to open around 700 new restaurants in China this year.
With concern over food quality subsiding in China and the continued international growth and expansion into emerging markets, we reiterate our BUY rating for Yum! Brands Inc.