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Yum Brands Sales Lifted by the China Business It Plans to Spin Off

A young girl tries out the new US fastfoA young girl tries out the new US fastfo
Today's children in China are much better nourished than those brought up during the Cultural Revolution.Photograph by AFP/Getty Images

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.