By Thomas Hughes
Food and beverage companies have been making headlines this earnings season. Earnings and profits among restaurants, beverage producers and snacks are increasing. You would think the strengthening U.S. recovery could have something to do with it. However, big names with global exposure are experiencing large scale growth overseas and sluggish sales here at home. Slowing GDP growth in China is having no effect on the results of food giants like O'Charley's (CHUX), Coca Cola (KO), Pepsi (PEP) and Yum Brands (YUM).
O'Charley's jumped over 3% yesterday on the release of its fourth quarter and full year results. The fourth quarter saw a decline in net revenue due to some store closings but it was partially offset by a 1.1% increase in comparable store sales. O'Charley's operates three chains of restaurants and saw growth among them all. The flagship chain, O'Charley's, grew by .3%. Growth among franchisees more than compensated for a slight decline in company owned operations. The other two segments of operation, Ninety Nine Restaurants and Stoney River Legendary Steaks, grew by 3.9% and 7.2%, respectively. These two chains have been experiencing explosive growth and gaining popularity among traders and investors alike. The increased business is helping to alleviate cash flow and profitability issues. Losses from ongoing operations were cut by 60% in 2011 from the previous year.
O'Charley's is doing something right. The growing popularity of new brands Ninety Nine Restaurants and Stoney River could save the business. The earnings release sparked an intense round of buying and selling and left the stock above short term resistance. O'Charley's has been making the right moves, trimming down core operations and making room for growth in the other two businesses. The strengthening U.S. economy will continue to support business. O'Charley's should turn a profit in 2012. This stock, which currently trades around $6.95, will be trading near $10 by the end of the year.
Another up and comer in the retail-restaurant sector is Caribou Coffee. This company posted a consolidated sales increase of 16% for the third quarter of 2011. Commercial sales and franchises increased by over 65%. The strength of the results, released in November of 2011, is pointing to net sales growth over 10% and earnings per share around $.50.
Coca Cola beat the street with its fourth quarter earnings. Global sales increases and higher prices here at home helped the beverage giant to please investors and increase profits. Fourth quarter and full year earnings per share were both up by 10%, which also exceeded Coke's own predictions of growth. Global economic conditions are not adversely affecting sales. The company was able to achieve 5% volume growth worldwide, led by sales of Coca Cola. All this equals 20% more income than last year, the number most important to investors. The stock is currently trading around $68 and looks indecisive. The stock has been in a trading range all year, fears of slowing growth linger and investors question if the company will be able to maintain solid performance into 2012. There is also the growing trend of health, as more and more educated people are turning away from soda.
Competitor Pepsico is expected to announce earnings on Thursday, February 9th. Third quarter 2011 results were strong and the full year is expected to be good as well. Pepsi is diversified into foods as well as juice through its other brands, Frito-Lay and Tropicana. For the third quarter and the first nine months of last year Pepsi increased snack and beverage volume, net revenue and earnings per share. Volume growth was led by snacks at 8%. Net revenue increased by 9% and net earnings increased by 5%. Pepsi also restated its expectations for high single digit growth for 2011. This stock is currently trading around $66.50 on average volume. The market is quiet in anticipation of the upcoming announcement. Pepsi will break above $67.50 and near $70 by next quarter.
Yum Brands posted a 30% gain in fourth quarter earnings based on increased overseas sales and improvements to its Pizza Hut operations. Operating costs improved, yet net revenue only increased by 15%. Yum's global expansion continued in 2011, opening more than 1,500 new stores, over 650 in China alone. The results, plus plans for continued growth in 2012, make the company's projection for 10% earnings growth feasible. Complementing strong overseas results, U.S. sales increased as well. New marketing campaigns, especially Pizza Hut's $10 deal, have helped to regain lost market share. The real shining start though is the China market, which grew comparable store sales by over 20%. The rest of the company, including the U.S. and Europe, only grew by 3%.
Yum Brands is set for a remarkable 2012. The company's primary growth market, China, is still growing even though many pundits are focusing on the slowing rate. The market is not saturated and provides plenty of opportunity for growth. The stock is currently trading over $65, making new all time highs. The stock is valued about 23 times earnings and yields 1.75%. Yum Brands will be a continuing growth story through 2012 and 2013. I expect to see share prices rise inline with the three year bull trend. The dividend is an added bonus that will sway some investors who are on the fence.