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HenryTo
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 Posted: Wed Jul 14, 2010 3:10 pm Post subject: Yum Brands (YUM) |
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Morningstar on YUM's 2Q earnings:
| Quote: | | Yum Brands' YUM second quarter came in as anticipated, highlighted by strong results from China and other emerging markets. Pizza Hut's U.S. momentum also continued, which we attribute to the success of the ongoing $10 pizza promotion, while KFC's domestic results trailed the rest of the firm because of difficult year-over-year comparisons. The second-quarter results support our view of Yum as a compelling long-term international growth story, backed by continued overseas unit development and impressive system sales growth in China (15%) and emerging markets (10%). Management's 2010 earnings forecast of $2.39-$2.43 per share- -implying about 12% growth for the year--fell a few cents short of our outlook, but was consistent with near-term expectations of higher food commodity costs worldwide and labor inflation in China. We plan to make a few nominal changes to our model, but they will not be enough to sway our fair value estimate. |
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HenryTo
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HenryTo
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rffrydr
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| Posted: Thu Oct 06, 2011 9:55 am Post subject: |
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No slowdown spotted. Just the inflation pinch.
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HenryTo
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HenryTo
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Location: Los Angeles, California
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| Posted: Thu Jul 14, 2011 1:18 pm Post subject: |
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Morningstar on YUM's 2Q earnings:
| Quote: | | Although we were anticipating strong results out of Yum Brands YUM following headlines about 9.5% second-quarter GDP growth in China, an 18% increase in China segment same-store sales (buoyed by 21% transaction growth) and operating profit growth of 25% reinforced the tremendous growth opportunity that lies ahead of the company in that country. U.S. results left something to be desired, however, even after earlier caution about the potential lingering effect of the negative publicity from a class-action lawsuit over Taco Bell's food quality. U.S. same-store sales declined 4% (declines of 2%, 5%, and 5% for Pizza Hut, KFC, and Taco Bell, respectively), and operating profits fell 28% for the quarter (representing 360 basis points of margin contraction to 14.9%). While we believe most of the headwinds facing Taco Bell are temporary, we have concerns that turnaround efforts at KFC are stalling and still contend that more aggressive measures like store closings may be necessary to right the ship. We plan to raise our full-year China segment forecasts, based on the second-quarter results, and lower our U.S. segment expectations. These changes should effectively cancel each other out, and we will leave our $56 fair value estimate unchanged. Yum shares appear fairly valued currently, trading at roughly 18 times our 2012 earnings per share estimate, an enterprise value/EBITDA multiple of 10.5 times, and a free cash flow yield of almost 5%. With the sector trading at average price/earnings and enterprise value/EBITDA multiples of 22 times and 10 times, respectively (toward the high end of historical averages), we remain concerned that commodity costs and consumer spending headwinds could pressure valuations across much of the restaurant industry in the coming months. If this thesis plays out, operators with geographic diversity, bargaining clout with suppliers, and advertising scale like Yum should be better positioned to keep fundamentals healthy. |
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HenryTo
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| Posted: Fri Feb 04, 2011 5:27 am Post subject: |
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Morningstar on YUM's 4Q earnings:
http://quicktake.morningstar.com/Stocknet/san.aspx?id=368783
| Quote: | China and other emerging markets fueled much of Yum Brands' YUM growth during the final quarter of 2010, but a modest improvement in U.S. comparable-store sales gives us confidence that efforts to drive traffic are starting to gain traction. We believe inflationary food costs will dominate the conversation as the focus turns to 2011, as will rising labor costs in China. However, given Yum's firmly established economic moat (based on meaningful bargaining power, a strong portfolio of brands, and advertising and distribution economies of scale) and achievable emerging market restaurant opening goals, we find management's 2011 earnings per share growth target of 10% realistic. Our fair value estimate is unchanged following the fourth-quarter results, as is our view of Yum Brands as a compelling investment play on a burgeoning middle class in China and other emerging markets. Still, we find shares to be nominally overvalued, trading around 18 times our 2011 earnings per share estimate, an enterprise value/EBITDA multiple of nearly 11 times, and a free cash flow yield of 5%.
Despite rising labor costs, we are confident that the China division can deliver 15% operating income growth in 2011, driven by mid-single-digit same-store sales growth, double-digit unit growth, and modest general and administrative expense leverage. Rising labor costs continue to be a double-edge sword in China, as increased spending power among China's middle class helped to drive impressive 8% same-store sales growth in China during the quarter (as did new breakfast alternatives, daypart expansion, and increased delivery options) but also resulted in a 40-basis-point decline in operating margins. Still, we contend that Yum will be able to effectively counteract labor cost pressures through pricing power (McDonald's MCD and Starbucks SBUX recently raised prices in the market) and local economies of scale.
Emerging markets continued to showing tremendous promise, as fourth-quarter system sales grew 16%, 13%, and 39% in France, Russia, and India, respectively. China gets much of the focus as the company's largest contributor to operating profit, but we believe Yum's international division (all countries outside the U.S. and China) should be increasingly more relevant over the next few years. Management's goal of 10% operating profit growth for 2011 (based on mid-single-digit unit growth and low-single-digit same-store sales growth) strikes us as achievable, if not slightly conservative. However, we remain mindful that austerity measures could create a moderate top-line headwind in several European markets this year. |
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