Upon the earnings release for Yum! Brands' (YUM) fiscal 4th quarter 2013, after-market traders have been buying up shares of the stock. The global fast-food giant has gained 4% after the bell on Monday after posting earnings of 86 cents per share on revenues of $4.18 billion for the quarter. This amounts to a 7.5% positive earnings beat (and a 3-cents-per-share improvement yoy) on sales that came in light compared with our estimates.
So a mixed report sees this much love in the after-market? Sure — it's clear investors were expecting bad news here, and they didn't really get it. Yum Restaurants International (YRI) actually came in 5% higher for the full year, despite being down 4% in China.
But everyone knew the avian flu issues in that country over the past year were going to lower its fortunes, and KFC is Yum's biggest business in China (it sells a lot more chicken there than McDonald's [MCD] does, and that company's already reported numbers were no great shakes). More important on this topic will be what the company projects going forward: Shanghai is currently banning chicken sales for three months and Hong Kong is doing so for three weeks.
Worldwide operating profit grew 2% in the quarter, including 5% in China, 2% in the U.S. and 11% in YRI. Yum's international business opened up a record-setting 1055 new stores, 708 of which were in emerging markets like Asia (ex-Japan), Latin America and Africa. Further, YRI saw key growth in select countries in Europe.
Analyst had been really taking down their earnings estimates throughout the quarter, for Q4, fiscal 2013 and fiscal 2014. Five downwardly revised estimates had taken place for the quarter in the past month, and three downward revisions came for the fiscal year numbers over the same time period. This helped lead Yum to a Zacks Rank #4 (Sell) ahead of the earnings report, though its longer-term recommendation is Neutral.
Consider also that while shares of YUM had fallen more than 11% year-to-date, largely on the continued bird-flu issues, this came off all-time highs toward the end of 2013. That said, the stock has been range bound going back nearly two years.
China remains key — 50% of Yum's sales come from this country. For now it seems the other businesses, especially within YRI, have carried the company through to the earnings beat. Putting these serious avian flu problems behind them for good would likely demonstrate some strong upside for the shares.
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