Is Yum! Brands Back on Track?

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Source: http://www.flickr.com/photos/homard/

For several years, Yum! Brands (NYSE:YUM) was considered one of the better ways for investors to bet on emerging-market consumers, and in particular Chinese consumers. Sales and profits grew relentlessly, sending shares substantially higher.

However, in 2012, investors became concerned that the company’s Chinese sales were in trouble, as Chinese consumers were concerned about the quality of the food served at Yum! Brands’ restaurants. As a result, one of the biggest drivers of the company’s sales reversed course. Chinese sales went south, and so did the company’s profits and overall growth.

This sent shares into a long consolidation. While the stock didn’t really fall substantially, the uptrend had been broken, as shares traded from the mid-$60s to the mid-$70s. This signaled that while investors were concerned about the company’s long-term growth potential that the trouble in China would be short lived.

When the company released its earnings figures on Tuesday, this sentiment became grounded by empirical evidence. Here are a few highlights from the report:

  • Total sales grew 4 percent, with Chinese sales growing 17 percent.
  • Operating profits grew 22 percent, with Chinese operating profits growing 80 percent.
  • The company opened 249 new restaurants internationally, with the vast majority of them in emerging markets.
  • KFC sales increased 4 percent, while sales at Pizza Hut and Taco Bell were essentially flat.

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