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YUM!’s recovery in China continues but what about growth beyond the recovery?

posted on July 10, 2013 at 6:59 pm
yum

YUM! Brands (YUM) is moving back toward normal in China, according to second quarter earnings announced after the market close today.

But is “normal” enough for a stock that’s trading—even while the China problem continues to hurt sales—near an all-time high?

At the end of 2012 sales at YUM! Brand’s KFC stores in China fell off a cliff when government officials discovered that some suppliers had fed their chicken more antibiotics than permitted under Chinese rules. By April 2013 sales were down 29% from April 2012.

In the months since sales have clawed their way back toward normal. In May sales were down just 19% from May 2012. In June, the company announced today, the decline had been trimmed to just 10% year to year. And, the company continued, by the fourth quarter of 2013 growth in China will have turned positive.

For the second quarter the company announced earnings of 56 cents a share, two cents a share better than Wall Street projections. Sales came in at $2.9 billion, slightly short of the $2.93 billion consensus, and an 8.3% drop from the second quarter of 2012.

What’s hard to tell from these results—and what has been hard to tell about YUM! Brands ever since the hatching of the China chicken disaster—is what is the underlying growth trend for YUM! Brands. Before the huge drop in sales in China overwhelmed all the other numbers from the company, YUM! Brands was showing strength on a turnaround at its Taco Bell stores.

But the company faced important questions about future growth. Read more

McDonald’s looks to be leaving same store comparison pain behind

posted on March 8, 2013 at 6:03 pm
mcdonalds

Today’s announcement of February same store sales from McDonald’s (MCD) shows what the company has been up against in the last few months. Same store sales fell 1.5% in the month from February 2012. That compares to a 7.5% year over year gain in same store sales back in February 2012.

But today’s news also signals the coming end of the McDonald’s year-to-year comparison problem after March or so. Read more

Forecast of extended drop in China sales hammers YUM shares even after lowered guidance

posted on February 4, 2013 at 8:09 pm
yum

The Shanghai Food and Drug Administration concluded its investigation into chicken sold by Yum! Brands KFC stores in China on January 25, the company said in today’s, February 4, fourth quarter earnings release. The Chinese agency did not fine the company or decide to bring a legal or regulatory case for higher than permitted levels of antibiotics in chicken sold by KFC from supplier Liuhe Group.

That doesn’t mean that investors, though, have cleared the company. The stock fell 1.99% today before the earnings report and then another 5.38% in after-hours trading post for a total loss on the day of 8.2%.

The problem wasn’t fourth quarter earnings—the company actually beat expectations by a   penny—or revenue—at $4.15 billion slightly ahead of the $4.12 consensus. Read more

December sales surprise leads McDonald’s fourth-quarter earnings beat

posted on January 23, 2013 at 2:43 pm
mcdonalds

A jump in December sales looks like it bailed out McDonald’s (MCD) fourth quarter earnings, reported today. Earnings climbed to $1.38 a share from $1.33 in the fourth quarter of 2011. Wall Street analysts were looking for $1.33 a share.

Analysts had forecast a 1.8% drop in December same store U.S. sales and instead the company reported a 0.9% gain.

The question, if you own McDonald’s (the stock is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ ,) is why? Do December results represent a one-time boost from company’s decision to keep more stores open on Christmas than in 2011 and a shift of a limited-time offering of the popular McRib sandwich to December? Or is there something more lasting in the unexpected December increase?

Actually, it looks like the December surprise might be the result of price cuts that McDonald’s implemented in November that opened a small but significant gap between McDonald’s and its competitors. The November price cuts came to about 0.75 percentage points. That kept the company’s price increase for the entire third quarter to 2%, according to Credit Suisse. That looks like it was significantly below price increases in the category.

This doesn’t change the calendar on the tough year-to-year comparisons that McDonald’s faces in the beginning of 2013. The earnings increase in the first quarter of 2012 from the first quarter of 2011 came to 6.9% and I don’t think there’s any way that McDonald’s matches that kind of growth in the first quarter of 2013. In its conference call the company said that it expects global same-store sales to decline in January.

If you own these shares, you own them for the easier year-to-year comparisons that set in after the March quarter.

All the same, McDonald’s unexpectedly strong showing in December looks to me like a sign that the company has limited the last half of 2012 resurgence of competitors such as Burger King (BKW) and Yum! Brands’ (YUM) Taco Bell.

As of January 23, I’m leaving my target price at $104 a share.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of McDonald’s as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

KFC’s bucket of bad news for Yum! Brands in China isn’t empty yet

posted on January 8, 2013 at 5:40 pm
yum

Yum! Brands (YUM) dropped the other drumstick yesterday.

An 8-K report filed with the Securities & Exchange Commission (SEC) on December 21 said that a December 17 Chinese TV story about high levels of antibiotics found in KFC chicken in China from on two Chinese suppliers would have a moderate impact on sales in China. Moderate, the company told Wall Street analysts in guidance ahead of the company’s February 4 earnings report, would amount to a 4% drop in same store sales in China in the fourth quarter.

Yesterday, the company filed another 8-K report that lowered guidance to a 6% drop in same store sales in the quarter. That’s a huge decrease in sales during the last two weeks of the quarter. Credit Suisse estimates that same store sales must have showed a 15% to 20% decline in the last two weeks of the period to produce this large a shift for the quarter as a whole.

It’s not clear to me that Wall Street earnings estimates have yet caught up to the shift. 60 days ago the consensus for 2012 earnings at Yum! Brands was $3.27. Today it’s $3.25. Estimates for the fourth quarter have dropped to 83 cents from 85 cents 60 days ago.

The shares did drop 4.2% today to close at $65.04 but that is still substantially above the $63.88 low on December 21 and only partially reverses the climb to $68.32 on January 4 from that post-guidance low.

I think we’re likely to see more—if modest—downward pressure on the stock through earnings as investors fret about the very real possibility of an earnings miss or negative guidance for the first quarter of 2013. Or both.

I’d wait on these shares.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Yum! Brands as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/



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