Yum! Brands, Inc. YUM, in its recent annual conference, discussed details about the previously announced spinoff of its China business.
Yum! Brands – Post Split
The company stated that post separation, each of the two companies – Yum! Brands and Yum! China – is expected to return about 15% per year to shareholders through earnings growth and dividends. This compares favorably with Yum! Brands’ current earnings growth projection of 10%.
The company added that it plans to return about $6.2 billion to shareholders between the date of announcement of the separation (Oct 20, 2015) and the expected completion of the split by the end of next year.
Post separation, Yum! China will hold exclusive rights to the KFC, Pizza Hut and Taco Bell brands in China and will also have the provision to add new brands. The company will be able to triple its unit count in the long term and with almost no debt and substantial free cash flow, it is expected to deliver strong growth.
The new Yum! Brands is likely to be 96% franchised by the end of 2017. The company will have provision to triple its unit count in the long term with strong growth from the emerging markets. Also, it will receive a license fee of 3% of sales generated in China through KFC, Pizza Hut and Taco Bell. The company will, however, not get any fees initially for new units opened in China.
Yum! Brands – 2015 & 2016 Projections
Yum! Brands continues to expect 2015 earnings growth to be flat to low-single-digit.
The company expects to deliver 10% growth in operating profits in 2016. This comprises 10% growth each from China and KFC divisions, 5% from its Pizza Hut division and 6% from its Taco Bell division.
Yum! Brands expect currency to impact operating profits by 2%. Meanwhile, it expects an extra week next year to add 1.5% to the profits.
Yum! Brands – China Division Sales, Nov 2015
The company stated that November same store sales declined about 3% at its China division. This includes about 1% decline in KFC and 9% decline in Pizza Hut Casual Dining.
Yum! Brands reaffirmed that the China division is expected to witness same sales growth of 0%-4% for the fourth quarter. While the KFC division is expected to grow, the Pizza Hut Casual Dining division is expected to record same store decline.
Zacks Rank and Stocks to Consider
Currently, Yum! Brands holds a Zacks Rank #4 (Sell). Some better-ranked stocks worth considering from the restaurant space are BJ's Restaurants, Inc. BJRI, McDonald's Corp. MCD and Shake Shack Inc. SHAK. All these stocks sport a Zacks Rank #1 (Strong Buy).
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