YUM Yum Brands Inc

By Maria Armental 

Yum Brands Inc. on Wednesday swung to a fourth-quarter profit although revenue declined, missing Wall Street projections.

Its bruised China business, which Yum plans to spin off by year's end, showed continued signs of recovery, posting a 7% system sales increase, which adjusts for currency fluctuation and includes franchise sales, and 1.9% top-line growth overall. It saw a 2% increase at restaurants open for at least a year, the second consecutive quarterly increase of the key metric.

Shares of the company, down 1.6% over the past 12 months, fell 1.3% to $71.52 in late trading.

Restaurant margin, meanwhile, improved 4.3 percentage points to 11.4%.

The Louisville, Ky., company was the first major Western fast-food company in China, opening a KFC near Beijing's Tiananmen Square in 1987 and building the brand into the largest foreign-restaurant chain in that country.

But the China division, which accounts for the bulk of its sales and once at the center of the company's expansion plans, had dragged results amid food quality concerns. At that point, 96% of the new Yum's restaurants, excluding the China division, will be franchises, compared with the current 79%.

Restaurant chains largely prefer franchised locations as a way to avoid volatility of high-cost items, such as labor and commodities.

As part of the planned spinoff, Yum has pledged to return $6.2 billion to shareholders before the separation is complete.

Over all, for the period ended Dec. 26, Yum reported a profit of $275 million, or 63 cents a share, compared with a year-earlier loss of $86 million, or 20 cents a share. The year-ago results were hammered by a $361 million charge from adjusting the value of Little Sheep, at the time billed as one of the first successful takeovers of a major Chinese brand.

Excluding special items, profit rose to 68 cents a share from 61 cents a year earlier. Revenue, which includes franchise and license fees, declined 1.2% to $3.95 billion.

Analysts surveyed by Thomson Reuters had projected 66 cents a share on $4.02 billion in revenue.

System sales at KFC sales rose 6% in the latest quarter, with Taco Bell up 7% and Pizza Hut up 2%. Company revenue declined 8.6% at KFC division, hit by currency effects, while Taco Bell revenue rose 3.1% and Pizza Hut revenue fell 1.1%.

World-wide restaurant profit margin improved 3.4 percentage points to 13.6%.

Yum backed its guidance of increasing 10% operating profit in 2016, stripping the effects of currency conversion.

Write to Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

February 03, 2016 19:09 ET (00:09 GMT)

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