Yum Brands Inc’s China sales accelerated faster than Wall Street expected in the first quarter, helped by Chinese New Year KFC chicken bucket promotions, marking an auspicious start to a year in which the company plans to spin off its China unit.
The owner of the KFC, Pizza Hut and Taco Bell brands also said first-quarter profit topped analysts’ targets and raised its forecast for core business operating profit growth to 12 percent for the year from 10 percent. Shares rose 3.9% in after-hours trade to $85.75.
The China unit is Yum’s top profit-driver. Its spinoff has garnered intense interest, attracting high-profile potential suitors and sparking speculation that the deal will fetch a rich valuation.
“Yum China will get a better valuation as same-store sales accelerate,” said Howard Penney, restaurant analyst at Hedgeye Risk Management.
Sales at China restaurants open at least one year rose 6% in the first quarter, Yum (YUM) said on Wednesday.
China KFC restaurants, the majority of the 7,205 stores in the division, posted a 12% rise in same-store sales while the smaller Pizza Hut Casual Dining posted a 1% decline. Analysts had expected a 5.5% gain in KFC China and a 3.7% drop at Pizza Hut China.
Sales at China restaurants open at least one year had risen 2% for both the third and fourth quarters of last year, and analysts polled by research firm Consensus Metrix had expected Yum to report a 2.1%t gain for the China region, where it is the biggest Western restaurant operator.
Yum also said that the separation of the China business was on track for completion by year-end.
Total revenue was steady at $2.6 billion. Net income rose to $391 million or 93 cents per diluted share from $362 million or 81 cents per share a year earlier. Adjusted earnings per share of 95 cents topped the 83-cent Wall Street consensus as calculated by Thomson Reuters I/B/E/S.
Shares of Yum have gained 13% so far this year, outperforming the S&P 500 as well as the stocks of both Starbucks Corp and McDonald’s Corp.
Yum representatives declined to comment on the spinoff. Company executives will host a conference call with analysts and investors on Thursday morning.
