Examining Yum's Tasty Earnings

Yum Brands (YUM) reported its quarterly results after the market closed on Wednesday. The company generated earnings per share of 45 cents on revenues of $2.653 billion and in the process, handily beat analysts’ estimates of 42 cents in EPS and $2.55 billion of revenues. This was quite deceptive, as restaurant level operating margins declined across the board in all regions: China -1.1%; Yum International -1.3%; and, US -2.9%. Increasing commodity costs – food and energy –are eroding the company’s margins.

I fully expected this to occur and pointed it out on Bloomberg Asia TV when YUM reported last quarter. On Bloomberg Asia yesterday I said that these increased costs are finally getting factored into the stock’s price. I have been patient with YUM and would look to buy the stock as it slips into the low $30s after selling it in the low $40s.

As for YUM in the US, there are two interesting points worth noting which I also mentioned on Bloomberg Asia. First, the same store sales increase of 2% in the US was one of the silver linings in the quarterly report. Second, I was very impressed with the new Taco Bell ads that were played throughout last evening's 15 inning Major League Baseball All-Star Game held in Yankee Stadium.