By Julie Jargon
The Year of the Horse is getting off to a better start for Yum
Brands Inc. in China than the Year of the Snake did.
Shares in the owner of KFC, Pizza Hut, and other restaurant
chains surged by more than 9% in Tuesday morning trading as
executives' comments on Yum's quarterly earnings call bolstered
confidence that its beleaguered China business may be
improving.
Chief Executive David Novak told investors that a
public-relations campaign aimed at assuring Chinese diners that its
KFC chicken is safe is turning the tide of consumer sentiment. He
said surveys showed Chinese consumers' trust in the KFC brand is
returning to levels seen in 2012 before problems with two poultry
suppliers turned off customers.
Mr. Novak also said that a recent outbreak of avian flu in China
hasn't had a meaningful impact on sales. He added that it is
difficult to predict sales during the two-week celebration of the
Chinese Lunar New Year. The Year of the Horse began on Friday,
according to the Chinese zodiac, following the Year of the
Snake.
Yum is also beginning to benefit from year-ago comparisons in
its China sales, which really started showing the negative effects
of consumer concerns about its chicken supply in late 2012.
The China division's operating profit increased 5% in the fourth
quarter, driven by a 0.4 percentage point improvement in restaurant
operating-profit margins, which was a result of cost cutting.
After the market closed on Monday, Yum reported a profit of $321
million, or 70 cents a share, in the quarter, down from $337
million, or 72 a share, a year earlier. Excluding a tax benefit,
pension settlements and other items, adjusted earnings rose to 86
cents a share from 83 cents a share, beating expectations of 80
cents per share. Revenue rose 0.6% to $4.18 billion.
Mr. Novak affirmed Yum's goal of attaining at least 20% earnings
per-share growth in 2014.
"We recognize that 2014 needs to be a show me, not tell me
year," Mr. Novak said on the call.
Write to Julie Jargon at julie.jargon@wsj.com
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