LOUISVILLE, KY. — Profit tumbled 30% for Yum! Brands, Inc. in the recent quarter, but the parent company of Pizza Hut, Taco Bell and KFC expects to deliver double-digit earnings per share growth for the full year. Foreign exchange headwinds and a slower-than-expected recovery in China following a food safety scare led to a 3% decline in revenues.
“E.p.s. in the second quarter, while below prior year, exceeded our original expectations,” said Greg Creed, chief executive officer, during a July 15 earnings call with financial analysts. “I am encouraged by the progress we have made and have every reason to believe we will deliver a strong second half and full-year e.p.s. of at least 10%.”
For the quarter ended June 13, Yum! had net income of $235 million, equal to 54c per share on the common stock, which compared with $334 million, or 75c per share, for the prior-year period. Excluding a special charge related to a refranchising loss, earnings per share fell 5% for the quarter.
Total revenues were $3,105 million for the quarter, which compared with $3,204 million the year before.
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| Greg Creed, c.e.o. of Yum! Brands. |
“Overall, I would summarize our second-quarter performance as very similar to our first-quarter results,” Mr. Creed said. “Taco Bell is firing on all cylinders. KFC delivered another solid quarter. China continues to improve. And while we are making progress, there is still much work to be done at Pizza Hut.”
But while executives during the conference call expressed confidence in the company’s growth forecast, investors were less than bullish. Yum! Brands’ share price on the New York Stock Exchange fell nearly 3% to $88.88 on July 15, down $2.70 from the previous close of $91.58.
For the second quarter, KFC Division system sales fell 4%, but rose 6% excluding the impact of foreign currency exchange. Revenues for the segment totaled $694 million, down 8% from $754 million the year before. Operating profit fell 2% to $152 million. With 90% of division profits generated in international markets, foreign currency translation had an unfavorable impact on profit of $19 million.
In the Pizza Hut Division, system sales fell 3%, or rose 1% excluding foreign currency exchange, reflecting 2% unit growth and flat same-store sales. Revenues for the quarter totaled $264 million, down 0.3% from the prior year. Operating profit declined 4% to $60 million, reflecting the negative impact of foreign currency translation by $2 million.
“I firmly believe Pizza Hut has enormous potential that recent results do not reflect,” Mr. Creed said. “We are intently working to become more competitive. Turning around these results will not happen overnight, but through our focus on value, our assets, digital and messaging, we are relentlessly working on realizing the full potential of our brand.”
System sales for the Taco Bell Division increased 9%, driven by 3% unit growth and 6% same-store sales growth. Revenues advanced 8% to $476 million. Operating profit grew 29% to $140 million.
“Taco Bell’s goal is to be America's favorite millennial brand, and we are making substantial strides to deliver on that aspiration,” Mr. Creed said, citing the chain’s recent expansion of delivery testing in select locations.
“I’m delighted with the strong initial test results, and this is just another example of Taco Bell proving it is on the cutting edge of Q.S.R.,” Mr. Creed said.
China Division system sales fell 4%, as 7% unit growth was offset by a 10% same-store sales decline. Total revenues fell 4% to $1,636 million from $1,709 million. Operating profit for the quarter fell 26% to $144 million, which included a negative impact of $1 million from unfavorable currency translation.
“I think the good news is that sales are recovering,” Mr. Creed said. “We went from minus-12% to minus-10%, despite a more difficult lap of plus-15%. The good news is that the consumer metrics are improving, trending in the right direction. As always, these are never linear, unfortunately, but we do know that when we compare this to previous recoveries we’re going in the right direction, making progress across the board. So, I feel good, and we remain obviously bullish on China.”
System sales for the India Division were flat prior to foreign currency translation, as an 11% decline in same-store sales offset 16% unit growth. Revenues slipped 0.5% to $35 million from $37 million for the year-ago quarter. Operating loss was $3 million, compared with a loss of $1 million the year before.
“I think we remain very bullish on India in the long term,” Mr. Creed said. “There’s no reason not to. There’s massive population and urbanization of that population, and there’s obviously underlying economic growth.”
