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Analysts react favorably to Yum Brands forecast
2008-12-11
LOUISVILLE, Ky. - Yum Brands Inc. has a good chance of meeting its earnings targets next year, some Wall Street analysts said Thursday, but some expressed concern about a predicted turnaround in KFC's U.S. business and the slowing economy in China. The parent of Taco Bell, Pizza Hut and KFC outlined plans at an investment conference Wednesday for at least 10 percent earnings-per-share growth next year, excluding special items. "Overall, we're more confident Yum can meet its 10 percent EPS growth target," Larry Miller, a restaurant analyst with RBC Capital Markets, said in a note to investors after the conference. But Yum shares fell $1.79, nearly 6 percent, to $28.12 on Thursday afternoon in an overall lower market, giving back much of the prior-day gains when shares rose 6.6 percent. Louisville-based Yum predicted strong growth in its burgeoning international business, led by its China operations. It also forecast solid operating profit growth in the U.S., with its hopes pinned on a turnaround at KFC after the national rollout of a grilled chicken product in the second quarter of next year. Barclays Capital analyst Jeffrey A. Bernstein, however, said in a note that a KFC rebound based on the new grilled chicken product is "far from proven." KFC has introduced grilled products in the past but couldn't sustain an initial sales upturn. John Ivankoe, an analyst with J.P. Morgan, agreed with Yum's prediction of at least 10 percent EPS growth, but said in a note he expects profit from the China operations to grow at the low end of the company's guidance. In its China division, Yum predicted operating profit growth in the range of 15 percent to 20 percent next year, excluding foreign exchange rate fluctuations. "We're unsure how Chinese consumers will react to a slowing economy," Miller said. Yum predicts its international division, which excludes China, will have 10 percent operating profit growth in 2009. The company said that half its projected 2009 profit growth is already in place, thanks to the fast pace of restaurant openings overseas and an expected $60 million in cost savings in U.S. operations from refranchising. Miller said the remaining predicted growth "looks achievable as we suspect there's upside room for EPS through share buybacks, commodities and China hitting the high end of plan." Yum predicted its U.S. commodity costs will rise by $60 million next year, amounting to half the commodity price surge the company shouldered in 2008. It predicted 15 percent growth in U.S. operating profit, which includes the $60 million in cost savings. Excluding those savings, ongoing operating profit is expected to rise 5 percent. Yum's brands also include Long John Silver's and A&W All-American Food.
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