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China Lags on YUM! Brands' (YUM) Earnings Win

Stocks in this article: YUM

NEW YORK (TheStreet) -- YUM! Brands (YUM) shares rallied after the bell on better-than-expected earnings, though gains were somewhat tempered by disappointing same-store sales in the U.S. and China. In extended trading, shares had added 4.8% to $69.32.

The owner of KFC and Pizza Hut reported fourth-quarter net income of 86 cents a share, six cents higher than analysts surveyed by Thomson Reuters had expected. Revenue was 0.5% higher year-over-year to $4.17 billion, but short consensus by $79 million.

While earnings beat expectations, same-store sales growth left a bitter taste. The company's China division was particularly hard-hit as the effects of a December 2012 avian flu scare continued to weigh heavily on KFC China sales.

Quarterly same-store sales in China fell 4%, in line with expectations from estimates provider Consensus Metrix. Over the year, same-store sales fell 13%, which included a 15% decline at KFC.

YUM! Brands is the largest Western restaurant chain operator in China, led by the popularity of KFC. Over the year, management worked to entice customers back to the chain.

"In China, we strengthened our poultry supply chain, made significant progress rebuilding consumer trust in the KFC brand and made substantial gains in restaurant productivity," said CEO David Novak in a statement.

In its U.S. Division, quarterly same-store sales fell 2%, which included declines of 4% at Pizza Hut and 5% at KFC, offset by 1% growth at Taco Bell. Analysts expected 1.6% same-store sales across the portfolio, made up of 2.8% growth at Taco Bell, 2.4% growth at Pizza Hut and a 1.4% drop at KFC.

Excluding currency exchange fluctuations, worldwide system sales grew 2%, which included 5% growth at Yum! Restaurants International (YRI) and 1% at U.S. stores. System sales declined 4% in China.

"While 2013 was a challenging year, I'm pleased to report continued progress as we enter 2014," said Novak. "With the decisive actions we've taken to strengthen our company across the board, we are well positioned to deliver double-digit EPS growth in 2014 and the years ahead."

TheStreet Ratings team rates YUM BRANDS INC as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate YUM BRANDS INC (YUM) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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