Here’s Why Shares in KFC’s Owner Are Bubbling Up

July 14, 2016, 9:04 AM UTC
A KFC restaurant in a shopping mall.  KFC, McDonalds,
BEIJING, CHINA - 2014/07/22: A KFC restaurant in a shopping mall. KFC, McDonalds, Pizza Hut and other Western brands are suffering a food safety crises in the Chinese market. On July 20, 2014, Shanghai Fuxi food Ltd. the meat supplier for well-known international fast food chains such as McDonalds and Yum Group, was exposed for using expired and bad chicken and beef. (Photo by Zhang Peng/LightRocket via Getty Images)
Photograph by Zhang Peng LightRocket — Getty Images

Yum Brands on Wednesday said its China business was gaining strength, sending shares of the KFC, Taco Bell and Pizza Hut brands owner higher as it prepared to spin off the key Chinese unit in the autumn.

Investors had worried about the fundamentals of Yum’s China business, which generates more operating profit than any other unit, after it recently posted bumpy results on food safety scares and company missteps.

Yum (YUM) shares jumped 4.6% to $89.69 in extended trading, after comments from Chief Executive Greg Creed appeared to ease such concerns. Creed also boosted Yum’s full-year core operating profit growth forecast to at least 14% from 12% previously.

“Our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining, including a return to positive same-store sales at Pizza Hut Casual Dining in recent weeks,” Creed said in a statement.

Sales at China restaurants open at least one year were flat with the year-earlier quarter.

China KFC restaurants, the majority of the 7,246 stores in the division, had a 3% rise in same-store sales in the second quarter, while the smaller and more upscale Pizza Hut Casual Dining chain posted a drop of 11%. Analysts had expected a 3% gain at KFC China and a 7.8% drop at Pizza Hut China.


Overall sales at China restaurants open at least one year were up 6% for the first quarter of this year, following a rise of 2% for both the third and fourth quarters of last year.

The company’s total revenue slipped 3% to $3.01 billion for the second quarter.

Net income rose to $339 million or 81 cents per share from $235 million or 53 cents per share a year earlier. Adjusted earnings per share were 75 cents, a penny higher than the Wall Street consensus calculated by Thomson Reuters I/B/E/S.

Company executives will host a conference call with analysts and investors on Thursday morning.