Will Fast-Food Stalwart Yum! Brands Continue to Deliver Profits?
Shares of Yum! Brands (YUM) - Get Report have shot up more than 3% on Thursday after reporting solid second-quarter earnings Wednesday and increasing its profit forecast for the full year.
Despite the stock's rise, there is certainly room for investors to realize more gains with Yum! Brands, though the company's profits may be generated in unexpected areas.
Traditionally, Taco Bell has been a big winner for the company. Known for cheap and fast fare to suit customers' late-night cravings, the chain owns and operates many of the favorite fast-food outlets in the U.S.
During the second quarter of 2015, sales at the restaurant rose by 6%, giving the company and its stock healthy boosts.
However, Taco Bell disappointed in the most recent quarter, reporting a decline in sales of more than 1%. This trend is particularly disheartening, given that the chain posted an increase of just 1% in the first quarter.
What is the culprit? A likely suspect is McDonald's, with its highly successful 24-hour breakfast menu, as well as increased competition in the entire fast-food industry.
But while Taco Bell disappointed, KFC picked up the slack, registering a strong uptick in same-store sales from China. Overall, the fast-food chain saw a sales gain of 6%, and 3% growth came from its Chinese locations.
KFC's success in China was cited as a key reason that Yum! Brands raised it its full-year operating profit growth forecast to 14% from 12%.
"Importantly, our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining," Yum! Brands Chief Executive Greg Creed said in a statement.
All eyes will be on Yum! Brands' China operations over the next year, especially as the company is planning to spin off this division, perhaps as soon as October, which should provide more opportunities for investors to profit.
As for Yum! Brands' U.S. operations, there is still reason for optimism.
The company plans to continue improving Taco Bell's own value breakfast menu.
In addition, Yum! Brands is trying out new technology innovations, such as using chatbots for ordering via mobile devices. This technology will allow customers to order from the company's Pizza Hut chain using Facebook Messenger or Twitter.
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Yum! Brands is still a great stock for those who want to invest in the fast-food industry. With a big spin-off in the works, as well as inevitable improvements to its domestic businesses, Yum! Brands should continue to serve up tasty profits.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.