By Paul Shea
Yum! Brands Inc. (NYSE:YUM) released its earnings numbers for the three months through the end of June on Wednesday afternoon after the market closed in New York. The company showed earnings per share of $0.73 for the period on revenue totaling $3.2 billion. On today’s market, traders drove the value of Yum shares down a fraction, indicating anxiety heading into this afternoon’s release.
In the same three months of 2013 Yum! Brands managed to earn 56 cents per share. The period saw the company bring in revenue of $2.9 billion. In the run up to the release of this afternoon’s numbers, analysts following the company were expecting it to earn 72 cents per share on revenue totaling $3.2 billion.
Yum! Shows China Growth
Many consumer brands have been aiming squarely at China for growth, and Yum! Brands may be the most proactive of the bunch. The company’s constant push into the massive Asian fast food market is making its brands, with KFC forming the spearhead, some of the most popular in the Chinese industry. Despite certain setbacks in recent years, the company is showing growth in China once again.
Fast food is a difficult business to be in right now as the market contends with a secular trend toward health spending. Companies across the gamut of market sectors have bet on health and fitness being the next big growth market, while fast food’s reputation makes that almost impossible to benefit from. In emerging markets, however, tastes are different, and consumer fast food may have a longer tail than in the western world.
China is a prime target for almost all consumer brands, but, given the image crisis faced by fast food companies, it may be more important for Yum! Brands. Despite the importance of international expansion, the company has not left itself unprotected at home, as evidenced by the success at Taco Bell in the second quarter results.
The Path For Innovation
During the first half of the year, Yum! Brands showed its ability to innovate at home with growth in its new Taco Bell breakfast menu. The initiative, which is the first major assault on the McDonald’s (NYSE:MCD) breakfast in quite a while, made its impression in this afternoon’s earnings report. Yum has shown that investment in China can be a risky business and, despite growth in Asia, the company needs to concentrate on its home market in order to ensure success.
The achievements of the Taco Bell breakfast program, along with the other successful branding initiatives from the Mexican-style restaurant and successes in other Yum! Brands stables, have prompted a more than 9% rise in the company’s value since the beginning of 2014.
That rise compliments a good showing in the second half of 2014 to bring the company’s twelve month share price growth to more than 15%. Yum! Brands is now valued at more than 30 times its 2014 earnings, meaning investors expect it to expand massively going forward. Whether or not it can continue its growth trajectory isn’t clear, but one thing is obvious, traders like Yum Brands, and they’re willing to bet on its future.