Yum Brands Inc. (NYSE: YUM) -- owner of KFC, Pizza Hut, and Taco Bell brands -- is expected to post a nearly 17 percent profit increase in its fiscal third quarter on stronger international sales, which rose despite weaker Chinese revenue.
Based in Louisville, Ky., Yum on Tuesday will report results for the three months ended Sept. 8. The company is expected to announce earnings per share of 97 cents, a 16.8 percent increase over the year-earlier quarter, according to an analyst survey by Thomson Reuters. Revenue is expected to climb to $3.63 billion from $3.27 billion.
Yum -- encompassing 37,000 restaurants and 1.4 million employees worldwide -- has been aggressive in China, where the company has been getting about one-half its profits and where it is planning to open 700 outlets in 2012. But a slowdown this year has cut Chinese profits to 37 percent of the company's total.
In the second quarter, Yum cited rising food costs and high labor costs as reasons for the decline in profits from operations in that country.
Yum said in its last quarterly report that it expects a rebound in profits from China, where consumers typically prefer KFC to the company’s main competitor, McDonald's Corp. (NYSE: MCD). In addition to aggressive expansion in China, Yum is expected to open 900 more outlets outside the U.S. and China through its Yum Restaurants International Division, which generates about 65 percent of Yum’s operating profit.
“Although we are concerned about a slowdown in China, we think that country offers long-term growth potential, given its large population and rise of the middle class,” said a Standard & Poor’s note. “We also believe the company has improved its U.S. operations, with same-store sales rising 7 percent in the second quarter of 2012.”
Taco Bell contributed significantly to Yum’s performance in the second quarter, when it saw a 13-percent increase in U.S. sales, thanks in large part to the popularity and hype behind the Doritos Locos Tacos. Taco Bell led the way in generating 26 percent growth in U.S.-based operating profit.
Yum closed down 0.71 percent to $66 on Friday. The stock has gained 13.36 percent so far this year.