Yum Posts Higher Earnings, '05 Outlook

Fast-food company Yum Brands Inc. (YUM) Tuesday reported a better-than-expected rise in quarterly earnings, helped by a lower tax rate, and raised its 2005 outlook due in part to its booming KFC business in China.

Yum's shares rose in after-hours trading following the announcement, and one analyst said the company had pleasantly surprised investors by beating expectations even as it faced sharply higher prices on key ingredients like meat and cheese.

"Even with the higher commodity cost market they still beat the guidance they were giving," said Monarch Research analyst John Beisler, who has a "buy" rating on Yum shares and owns none.

Net income for the fourth quarter ended Dec. 25 rose nearly 10 percent to $235 million, or 77 cents per share, from $214 million, or 70 cents per share, a year ago.

Excluding one-time items, the parent of the Taco Bell and Pizza Hut earned 73 cents a share. Yum had previously forecast earnings of 72 cents a share and said a lower tax rate added the extra penny.

Revenue in the fourth quarter rose 5 percent to $2.79 billion, helped by the impact of a weaker dollar and store expansion in markets like China and the United Kingdom.

Yum also said it recorded 2 cents per share in costs for changes in the way it accounts for leases and leasehold improvements. Yum has followed the lead of several major U.S. restaurant companies, including McDonald's Corp. (MCD) and Wendy's International Inc. (WEN), in making such changes.

Yum raised its forecast for 2005 earnings prior to special items by a penny, to at least $2.60 per share, below analysts' average forecast of $2.62 per share. The company cited its strong fourth-quarter results for the increase.

According to Beisler, Yum is typically more conservative than industry analysts in forecasting earnings.

"They usually come in about a penny ahead of the guidance that's given," he said.

Yum predicted earnings of 51 cents a share for the first quarter. Analysts were expecting 50 cents a share.

Profit margins in the first quarter will be lower than the year-ago period, Yum said, because of higher prices on ingredients such as meat and cheese. The company said higher commodity costs should moderate later in the year.

For the second quarter, Yum forecast earnings of 56 cents per share, below the Wall Street estimate of 61 cents. The company said a higher tax rate and costs for its international franchise convention would weigh on those results.

Yum forecast earnings of 73 cents a share for the third quarter and 80 cents a share for the fourth quarter. Analysts were expecting earnings of 68 cents a share and 84 cents a share, respectively.

Also on Tuesday, Yum said sales at its U.S. restaurants open at least a year rose 3 percent in January, led by a 6 percent rise at Pizza Hut (search). Same-store sales rose 3 percent at Taco Bell and climbed 1 percent at KFC, which Yum has been trying to turn around for over a year.

International same-store sales excluding China rose 13 percent in the period, or 8 percent on a U.S. dollar basis.

The company plans to report results for its China division separately beginning with the next monthly sales period.

Yum's shares rose 1.8 percent to $46.65 in after-hours trading on the Inet electronic brokerage from their New York Stock Exchange close of $45.84.