Yes, it was a premature for management to project strong confidence in a quick turnaround, especially in light of major obstacles in China. But I don't believe management intentionally mislead the Street.
[Read: Google Fiber a Godsend for Comcast]
Aside from the scandal involving two suppliers to its KFC restaurants, which were said to have been contaminated with antibiotics, there was also the threat of avian flu in its chicken supply. This, understandably, frightened customers. But there has been no evidence that Yum! knowingly involved itself in these situations.
I won't understate the company's rough PR history, especially since China accounts for more than 50% of Yum!'s total revenue and 40% of its profits. Still, the company's challenges are no secret. Yum! has provided consistent periodic and monthly updates about its performance.Ayear later, some investors still won't let the company off the hook, even in light of management's optimism. Yum! has suggested that China would grow at a rate of 15% for the full fiscal year. Although Yum!'s fourth-quarter numbers did fall slightly short of expectations, I believe patient investors can still do well here. The company posted 3% year-over-year growth in worldwide system sales. This includes 1% decline in the U.S. with 3% and 6% growth in China and Yum! Restaurant International, respectively. The story, however, continues to be China. Even though system sales grew 3% in the quarter, the company posted a 4% decline for the year. The cited poultry concerns severely impacted the company's KFC restaurants, which posted a 15% decline in same-store sales. This metric (comps) tracks the performance of stores that have been opened at least one year. Modest comp growth at Pizza Hut locations (up 4%) helped offset the weakness at KFC. But that was only to a certain extent. As horrific as these numbers may seem, they're meaningful increases to the October and July quarters. Truth be told, not much was expected this time, given the tepid situation. But I was nonetheless surprised by the actual output. Although worldwide system sales weren't overwhelming (in constant currency), the fact that China revenue was flat has to be considered a victory. This quarter was not the disaster that everyone expected. I say this while knowing full well that the company posted a 22% decline in consolidated operating profits.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts