Yum! Brands’ gets major boost from China

Feb. 2, 2011 | by Alicia Kelso

Louisville, Ky.-based Yum! Brands is on a roll in every corner of the globe. The company reported a 2010 EPS growth of 17 percent, and a fourth quarter systemwide sales growth of 7 percent.

Fourth quarter, ended Dec. 25, and year-end results were reported Wednesday, a few weeks after the company announced it was looking to sell two of its five brands, Long John Silver's and A&W, to focus on its flagship three -- Pizza Hut, Taco Bell and KFC.

Numbers were boosted by strong sales overseas, particularly in China. Yum! reported that its mainland China division has overtaken the United States as its top sales generator.

The expansion throughout China provided such a boon for the company that David C. Novak, Yum!’s chairman and CEO, called 2010 its best year as a public company.

“We finished the year with a strong fourth quarter that resulted in 27 percent EPS growth, excluding special items. We delivered 17 percent full year EPS growth, making 2010 the ninth consecutive year we exceeded our annual target of at least 10 percent,” Novak said. “I’m particularly pleased that performance was driven by an impressive 15 percent increase in operating profit, before currency translation, including gains across all of our business divisions.”

Year-end highlights

For 2010, in full, Yum!’s worldwide system sales grew 4 percent prior to foreign currency translation. This included 17 percent growth in China, 4 percent in Yum Restaurants International (YRI), and 2 percent in the U.S.

China’s same-store sales grew 6 percent. There were more than 500 new Yum! Brands’ outlets opened in China in 2010, which brought the total number of units run by the company in that country to more than 3,500.

KFC added 414 new restaurants in China and now has more than 3,200 units throughout the country. About 470 outlets are Pizza Hut casual dining restaurants.

Additionally, Yum! opened 884 new units in YRI. Worldwide operating profit grew 15 percent prior to currency conversion, including 26 percent in China, 11 percent in YRI and 3 percent in the U.S.

This global performance increased Yum!’s quarterly dividend by 19 percent in the third quarter and repurchased 9.8 million shares totaling $390 million at an average price of $40 throughout the year.

Fourth quarter highlights

The final fiscal quarter of 2010 brought in a 7 percent worldwide system sales growth, boosted by 19 percent in China, 6 percent in YRI and 5 percent in the U.S.

In the latter part of the year, China units’ same-store-sales grew 8 percent, and in the U.S. they were up 5 percent.

The worldwide operating profit in Q4 increased 13 percent, broken down to 15 percent in China, 18 percent in YRI and 15 percent in the U.S.

Focus will continue to be on China

In China, Yum! Brands outpaces its nearest competitor, McDonald's, by more than 1,000 restaurants and is outpacing its development by roughly 3:1.

Recent studies indicate the middle class in mainland China is more than 300 million people, creating significant long-term demand for the company's brands and rapid new unit development. Each of Yum!'s brands has great momentum in China as the company continues its goal of at least 20,000 units over the long term in mainland China.

“We improved our competitive position around the world. The highlight of our year was the fantastic performance from our China business,” Novak said. “Pizza Hut Casual Dining further demonstrated that it is a growing, profitable, and respected force in the casual dining category.”

Yum!’s successful numbers weren’t all achieved in mainland China, however. During 2010, more than 1,000 of the 1,391 new international units were added in emerging markets.

“Yum! now has over 10,000 restaurants in emerging markets throughout the world. Our leadership and growth potential in China and other emerging markets, coupled with the strength of our brands around the world, lead us to believe we’re on the ground floor of even more global growth,” Novak said.

This year, Yum!'s focus will be on commodity inflation and a global economy that is still recovering, however the company will use 2010's performance for momentum.

“We are fortunate that the sizable unit development we achieved in 2010 provides us with a head start toward achieving our 2011 profit growth,” Novak said. “I am very confident that we will build on our track record of double-digit EPS growth.”

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
View Alicia Kelso's profile on LinkedIn

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