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Strength in China offset lagging U.S. sales and powered

Yum! Brands

(YUM) - Get Yum! Brands, Inc. Report

to a 20% increase in third-quarter profits, the company reported after Wednesday's closing bell.

The results beat Wall Street's expectations and led the company to boost its profit outlook for the year.

The fast-food company, which operates chains including Pizza Hut and KFC, said it earned $230 million, or 83 cents a share, for the quarter, up from the $205 million, or 69 cents a share, a year earlier.

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Analysts, on average, expected earnings of 75 cents a share, according to estimates compiled by Thomson First Call.

Based on its third-quarter results, Yum! said it now expects its annual earnings to increase 14% in 2006 to $2.89 a share. The company previously forecast earnings of $2.83 a share for the year; analysts were predicting EPS of $2.84.

"The growing strength of our China and

Yum! Restaurants International businesses gives us continued confidence in our ability to sustain annual EPS growth of at least 10% while we consistently generate substantial cash," Yum! Brands said in a press release.

The franchise giant reported total sales of $2.28 billion for the quarter, up 1.7% from last year's $2.24 billion. U.S. same-store sales declined by 2%, while company-owned stores sales fell 8%. Revenue from franchisees rose 2%.

In China, the company said its quarterly profit rose 26% from last year, while its company sales in that region rose 28% in local currencies. Worldwide franchise fees rose 8%.

Shares of Yum! Brands closed down 19 cents, or 0.3%, to $54.57 in regular trading Wednesday. The stock recently was up $2.13, or 3.9%, to $56.70 after hours.