June 7, 2009 in Business

Yum! posts solid overseas growth

Universal Press Syndicate
 

Yum! Brands (NYSE: YUM), operator of KFC, Taco Bell and Pizza Hut, among other names, may be in healthier shape than the market believes, profiting from immense growth in foreign markets.

In its most recent quarter, Yum!’s earnings declined 14 percent, to $218 million. While there was a 12 percent drop in sales in the United States, sales from China rose 12 percent. In fact, the Chinese profit growth was 21 percent before currency translation – yuan-denominated gains shrink when reported in dollars.

China represents a major part of Yum!’s growth strategy. The company was one of the first to open American fast-food chains there and it has been expanding aggressively, with store count at its main restaurants up 18 percent year over year. Besides sheer growth in locations, other macro trends could continue to propel earnings forward, such as Chinese stimulus spending.

Yum! isn’t just relying on importing popular U.S. brands into China. In March, it bought a 20 percent stake in Chinese hot-pot chain Little Sheep for $63 million, planning to expand it, and it’s rolling out its East Dawning concept as China’s first national Chinese-food chain.

Yum! isn’t inexpensive by traditional measures; it recently sported a price-to-earnings ratio of 17. But it would look more reasonable if it could convert its swelling Chinese earnings back into dollars at a better rate.

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My dumbest investment

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