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Pizza Hut, KFC Menus Will Likely Become Pricier This Year

--Yum Brands says it will probably raise prices in China in 2Q depending on commodity inflation --Company says it will employ similar strategy in US and remaining international division --Stock up 2.75% to $64.93, a 10% boost so far this year By Annie Gasparro Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Yum Brands Inc. (YUM), which thrives on budget diners at its Pizza Hut, KFC and Taco Bell chains, will increase menu prices this year in various parts of the world in response to rapidly rising food costs. The pricing plan, which will be implemented in varying stages, follows on the company's strong fourth-quarter results posted Monday and positive 2012 outlook, instilling confidence among investors who may have been concerned about Yum's momentum given its high exposure to volatile emerging markets. The stock rose 2.75%, to $64.93 in Tuesday trading--marking a 10% rise so far this year. Yum's restaurants in China--namely Pizza Hut Casual Dining and KFC--have the biggest impact on its overall business, helping increase its profits 30% in the fourth quarter. However, food and labor inflation are nibbling away at its China restaurant margins, which fell to 15.8% in the quarter from 18.2% the year before, despite menu price increases. "We expect to make progress closing the gap between inflation and our menu pricing and to see positive year-over-year restaurant margins in the second half of 2012," Chief Financial Officer Rick Carucci said on a conference call with analysts Tuesday. To help the company build its margins, Carucci said that in China, "we expect to take, obviously, some pricing in 2012; our best guess is sometime in the second quarter, but that's dependent upon how things play out a little bit." In regard to the rest of the world, he added, "I think similar to China, in the way that we'll probably take some modest pricing early in the year, and then sort of reassess depending on what commodities do later in the year." Yum expects its food costs this year to rise 2% in the U.S., 6% in China, and 5% in its international division, excluding China, with inflation moderating in the second half of the year. Yum's strategy over the past few years has been to reduce its exposure to highly penetrated or underperforming markets by selling restaurants to franchisees, and to increase its exposure to emerging and underpenetrated markets. "Today, over 70% of our operating profit is generated by international businesses," compared with just 30% 10 years ago, Carucci said. The company plans to open 1,500 restaurants internationally this year, including 600 in China, which is similar to its 2011 expansion levels. Some analysts questioned Yum's ability to sustain such high growth again this year, but Chief Executive David Novak said Yum remains "very bullish about the development opportunities in China," given its continued growth of the consumer class. "Our goal is to keep this development engine primed and pumped and take advantage of the significant opportunity we have," he said. Yum is also making a somewhat unexpected comeback in the U.S., with same-store sales growing at Pizza Hut last year, and growing this year at Taco Bell, the primary driver of its U.S. business. "Taco Bell has reversed its negative sales in the first quarter, and positive same-store sales trends continue as we speak," Novak said. This year, Yum expects Taco Bell's new breakfast menu, Doritos taco and restaurant renovations to drive sales growth, but each are dependent upon how soon franchisees are willing to invest in them. -By Annie Gasparro, Dow Jones Newswires; 212-416-2244; annie.gasparro@dowjones.com

Stock News for Yum (YUM)
DateTimeHeadline
03/28/201412:35:00Yum Brands Unveils New Segment Reporting Structure -- Update
03/28/201412:30:44Yum Brands Combines Existing Divisions Into Global Brand Segments
03/27/201405:20:46Yum Bids to Regain Consumer Confidence in China With New Menu
03/21/201419:38:47Yum CEO's Total Pay Drops 29% to $10 Million in 2013
03/06/201416:43:39MARKET SNAPSHOT: U.S. Stocks Rise: S&P 500 At Record
03/06/201413:29:00MARKET SNAPSHOT: U.S. Stocks: S&P 500 Eyes Record Close
03/06/201411:00:04MARKET SNAPSHOT: U.S. Stocks Rise; S&P 500 Hits Intraday High
02/04/201417:25:41MARKET SNAPSHOT: U.S. Stocks Rise; Michael Kors, Yum Brands Climb
02/04/201414:34:11MARKET SNAPSHOT: Michael Kors, Yum Brands Jump On Earnings
02/04/201412:00:39Correction to Yum Earnings Story on Monday
02/04/201411:37:54Year of the Horse Off to a Better Start for Yum Brands
02/04/201410:56:08MARKET SNAPSHOT: U.S. Stocks Edge Higher; Michael Kors Soars...
02/04/201409:24:54Hot Stocks: Hot Stocks to Watch
02/03/201419:02:35Yum's Profit Slips, But Adjusted Earnings Top Expectations...
02/03/201417:50:32Yum's Profit Slips, But Revenue Rises
01/31/201422:33:05MARKET SNAPSHOT: 'Par' Earnings Not Good Enough After 2013 Stock...
01/31/201416:08:17Jobs Report, Yellen, Results from Media Companies, Twitter, GM...
01/13/201418:10:40Yum Brands' China Same-Store Sales Rose in December
12/03/201309:06:11U.S. Hot Stocks Futures: Hot Stocks to Watch
12/02/201318:10:38Yum Sees Fiscal 2014 Profit Rising at Least 20%

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