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.
Meanwhile, Jefferies kept the stock at a "hold" with a price target of $70, warning not to expect a turnaround just yet.
"China's 4Q SSS of -4% was already known, and the stock has been giving back some of the ground it gained into the year-end as investor hopes of a solid turnaround were stunted. Dec comps +5% for KFC, but it's hard to get too optimistic given the brand was likely lapping a -15% from Dec '12, and the -3% decline in PH after ten months of positive growth was also disappointing," analysts wrote in the report.
"We worry about Jan trends given recent China economic data and the resurgence of Avian Flu cases ahead of Chinese New Year. Recall that 1Q13's -20% comp declines were attributed solely to negative publicity about chicken quality, as last year's flu outbreak did not hit until April. KFC's major refresh is due soon and management expects an improvement in trends through 2014, particularly due to easier compares, but we can't help but think the turnaround will again be less robust than hoped."
Credit Suisse set a "neutral" rating with $79 price target
"Assuming YUM can make progress on the top-line, this gives credibility to guidance for 40% China profit growth in 2014," wrote analyst Karen Holthouse in the report. "China performance (and sentiment) is also driven by the top line, and any commentary on QTD trends/the impact of the Avian flu ... could become the more important data point. Given the volatility in 2-year trends through 4Q and the risk of Avian flu disrupting Chinese New Year-related travel, our bias is to be relatively cautious on near-term comps."
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."
- You can view the full analysis from the report here: YUM Ratings Report