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TheStreet Open House

Yum! Brands (YUM) Earnings: Wall Street's Take

NEW YORK (TheStreet) -- Yum! Brands (YUM) was rallying on Tuesday after reporting better-than-expected earnings a day earlier

By early afternoon, shares had spiked 8.6% to $71.85.

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

Sales in the company's China division were lower on the effects of a December 2012 avian flu scare. Quarterly same-store sales in China fell 4%, in line with expectations from Consensus Metrix. Over the year, same-store sales in China fell 13%.

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.

Here's what Wall Street analysts have to say about the fast food operator's performance:

UBS reiterated a "buy" rating with an $85 price target.

"While significant China sales uncertainty remains a cloud, upside to China CRMs and op profits coupled with YRI to more than offset some modest shortfall in the U.S-Net op profits beat us by $0.01 consensus by $0.04. EPS beat us/cons by $0.04/$0.06. With less deleverage in 4Q and a reiteration of 2014 EPS guidance for at least 20%, we believe some of the fears behind the recent share price declines can abate," wrote analyst Keith Siegner in the report.

"We believe 2013 triggered the implementation of a true cost containment/efficiency program that can help YUM China run leaner into a sales recovery and drive upside to consensus."

Oppenheimer reiterated an "outperform" and set a price target of $80. The investment firm said margin improvements could drive 2014 earnings upside.

"Our primary takeaway from better than expected 4Q results is impressive margin management in China. We believe the Street mis-models restaurant margin expansion in '14, and therefore we envision an EPS upside opportunity," analysts said.

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