Yum! Brands Inc. (NYSE: YUM) – Q1 FY 2011 Earnings Preview
Wednesday, April 20, 2011 2:17 PM

The world's largest food company, Yum! Brands Inc. (NYSE: YUM), is expected to report its first quarter FY 2011 earnings results on April 20, 2011. In fiscal 2010, the company's reported EPS exceeded analysts' consensus forecast by margins ranging from 1.40 to 11.30 percent.

YUM is the world's largest quick service restaurant company based on number of system units, with more than 37,000 units in more than 110 countries and territories. YUM consists of six operating segments:  KFC-U.S., Pizza Hut-U.S., Taco Bell-U.S., Long John Silver's-U.S. and A&W All American Food Restaurants -U.S., YUM Restaurants International and YUM Restaurants China.

Yum has been successful overseas, especially in China, where it is a dominant quick service restaurant company in mainland China, with over two times more restaurants than McDonalds. However, the U.S. is the biggest revenue generating country for the company, accounting for more than 59 percent of total sales, With an eye on protecting its home turf, the company is now overhauling domestic operations by re-franchising, introducing new products, and improving the overall quality of the restaurants in U.S.

For the fourth quarter FY 2010, Yum reported total revenue of $3.56 billion, up 6 percent compared with revenue of $3.36 billion in the same period last year. Results were up 24 percent sequentially from revenue of $2.86 billion in last quarter. Net income reported for the quarter was $274 million, or $0.56 per diluted share, up 26 percent and 24 percent respectively, compared with net income of $216 million, or $0.45 per diluted share for the fourth quarter FY 2009. For full year 2010, the company reported sales of $11.34 billion, up 5 percent, compared with sales of $10.83 billion in FY 2009. Net income for the year was $1.15 billion, or $2.38 per diluted share, representing an increase of 7.7 percent and 7.2 percent, respectively, compared with net income of $1.07 billion, or $2.22 per diluted share.

In the restaurant industry, Yum! Brands compete with McDonald's Corp. (NYSE: MCD). Over the trailing 12 months, McDonald's has reported earnings of $4.58 per share on revenue of $24.07 billion, with quarterly revenue growth of 4 percent. On the other hand, Yum! Brands reported earnings of $2.38 per share on revenue of $11.34 billion, with quarterly revenue growth of 5.90 percent.

Yum! Brands Inc. has a P/E ratio of 21.37, higher than industry's average P/E of 18.70. The P/B ratio of the company is 15.14, higher than the industry's P/B of 8.25. The company's net profit margin is 7.69 percent, better than the industry's margin of 10 percent. The ROE of the company is at 84.66 percent, compared with the  industry's ROE of 28.50 percent.

On March 25, 2011, the company's board of directors declared a dividend of $0.25 per share of common stock, which will be distributed May 6, 2011, to shareholders of record at the close of business on April 15, 2011. In September 2010, Yum increased its quarterly dividend 19% to an annual rate of $1.00 per share. In March 2010, the company's board of directors authorized additional share repurchases through March 2011, of up to $300 million of its outstanding common stock.  For the quarter ended December 25, 2010, all share repurchases were made pursuant to this authorization. In January 2011, its board authorized an additional share repurchases through July 2012, of up to $750 million of its outstanding common stock.

For the first quarter, analysts' EPS estimates range from a low of $0.61 to a high of $0.67 per share, compared with a consensus estimate of $0.64 per share to $0.59 in the year ago quarter. For this quarter, analysts' revenue estimates range from a low of $2.30 billion to a high of $2.53 billion, compared with a consensus estimate of $2.39 billion to $2.34 billion in the same quarter a year ago. For the quarter ended March, 2011, the consensus EPS forecast has remained unchanged at $0.64 per share over a period of 90 days.

In the last 52 weeks, YUM's shares have been trading in the range of $37.54 to $53.19. The last trading price of the stock was $50.87 on April 4, 2011. During the first quarter FY 2011, analysts at Argus upgraded the stock to a buy.



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