Yum Forecasts Strong Expansion Overseas

Published February 7, 2012 6:09PM (EST)

LOUISVILLE, Ky. (AP) — Yum Brands Inc., the owner of Taco Bell, KFC and Pizza Hut, said Tuesday it's on course to deliver another hefty round of restaurant growth overseas in 2012, led by its insatiable China market and its emerging business in India.

The company also reported a turnaround at Taco Bell in the U.S., after sluggish sales stirred by publicity from a now-dropped lawsuit that claimed the filling in its tacos and burritos didn't contain enough beef to be called that. Taco Bell denounced the accusations as false.

"Our sales at Taco Bell turned positive late in the fourth quarter and they continue to be positive," Yum Chairman and CEO David C. Novak told industry analysts in a conference call one day after Yum reported its fourth-quarter profit rose 30 percent.

Yum shares traded higher Tuesday as it forecast continued strong overseas profit and improvement in its struggling U.S. business.

Yum shares were up $1.60, or 2.5 percent, at $64.79 in early-afternoon trading Tuesday

Restaurant expansion is a key ingredient in Yum's profit growth, and the company expects to open about 1,500 new stores outside the U.S. in 2012. That follows a record expansion in 2011, when Yum added 656 stores in China and 905 elsewhere around the globe.

Yum expects its earnings per share to grow at least 10 percent in 2012.

China has consistently delivered Yum's highest profits, and the company on Tuesday forecast continued strong sales growth at its Chinese restaurants open at least a year — a key barometer known in the industry as same-store sales.

"We do expect the combination of strong same-store sales and new unit development to produce healthy operating profit growth in 2012 in China," said Yum Chief Financial Officer Rick Carucci.

The company expects to add at least 600 new restaurants in China this year, along with 100 in India — which is emerging as Yum's second-leading country for new restaurants. The company added 101 new stores in India in 2011 as it tries to replicate its formula for success in China. In a sign of India's expanding role, Yum will start reporting India's results as a separate business segment.

"While we don't expect meaningful profit contributions from India this year, we are laying the foundation for this business to have a significant impact on Yum's profit growth in the future," Novak said.

Mark Kalinowski, an analyst at Janney Capital Markets, was upbeat about Yum's stock largely due to its growth potential outside the U.S.

"International businesses account for about 65 percent of the company's operating profits at present, and we expect this figure to generally grow in coming years," he wrote in a note Tuesday.

Yum, based in Louisville, Ky., points to Russia and Africa as other key growth markets, as well as developed countries such as Germany and France. The company plans to stake out a presence in about 20 African countries by year's end, Novak said.

In the U.S., overall revenue from existing restaurants was up 1 percent in the fourth quarter, led by 6 percent growth at Pizza Hut that offset declines of 2 percent at Taco Bell and 1 percent at KFC.

U.S. operating profit was up 10 percent, though Yum benefited from the quarter being a week longer than it was last year.

"Our U.S. business is clearly in a position to improve results," Novak said. "We expect profit growth from our U.S. businesses this year and more consistent performance going forward."

Taco Bell accounts for about 60 percent of Yum's U.S. profit, but the chain found itself in a prolonged slump after the short-lived lawsuit a year ago questioned its seasoned beef filling.

It took months, but the chain is seeing a sales rebound, Yum executives said.

Taco Bell hopes to continue the momentum by rolling out tacos with Doritos-brand nacho cheese-flavored shells in March. The chain recently started selling breakfast at about 800 stores mostly in the West, with the hopes of taking its early-morning offerings nationwide.

Yum operates more than 37,000 restaurants in more than 110 countries and territories. The company recently sold its Long John Silver's and A&W All-American Restaurants brands.

By Salon Staff

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