Yum! Brands Tops Q4 Earnings, Misses Sales

Global fast-food firm Yum! Brands (YUM – Analyst Report) reported its Q4 earnings results after the bell Wednesday, posting a 2-cent beat on the bottom line at 68 cents per share on revenues of $3.95 billion that were below expectations of $3.997 billion. Shares of YUM are down slightly in the after-market on the news.

The big story at Yum!, of course, happened back in the fall of 2015, when the company announced it will be executing a spinoff of its China business (Yum! China, which accounted for roughly 32 percent of Yum’s operating profit for 2015). This coincided with the company welcoming activist investor Keith Meister from Corvex to its board. This move would be a big play on the Chinese market — especially for the extremely popular KFC brand in that country — but near-term issues with the Chinese economy and stock market may create headwinds.

As far as Q4 is concerned, China Division system sales grew 7 percent year over year, as its restaurant margin jumped 4.3 percent in the quarter to 11.4 percent. Operating profit for the China Division mounted a whopping 207 percent in the quarter. This was the strongest quarterly growth performance for Yum! Brands overall.

Same store sales results for Yum’s franchise brand names are as follows: Taco Bell +4 percent, KFC +3 percent and Pizza Hut +1 percent. Forex for this global company negatively impacted operating profit by $107 million in the quarter.

Prior to the earnings announcement, analyst estimate revisions for YUM had been all over the place: 5 upward estimates for Q4 and 6 for fiscal 2015 in the past 60 days, while 4 downward revisions for fiscal 2016 also happened over this same time period. Perhaps this is reflecting concerns that the China spin-off might not be as profitable for the company by next year as earlier expected?

Yum’s conference call doesn’t get going until Thursday morning at 9:15 am ET. Q4 2015 marks the third time in four quarters the company has posted a moderate positive earnings surprise. Its current Zacks Rank #3 (Hold) includes a Value style score of C, Growth is A and Momentum is C. We will look for changes in these metrics following tomorrow’s conference call.