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Yum to Refranchise U.S. Units, Grow China

A KFC Store in China
A KFC restaurant in Beijing, China. photo/Kyle Taylor

LOUISVILLE, Ky. — Yum! Brands Inc. (NYSE: YUM) announced today that it expects to deliver at least 10% EPS growth in 2012.

Yum's chairman and CEO David C. Novak said: "This has been a strong year led by our China and Yum! Restaurant International businesses and I'm pleased to report we have raised our 2011 full-year EPS growth forecast to at least 13%, despite our disappointing U.S. results." Novak added, "We are well positioned for another strong year in 2012 given our robust international new unit development, innovative marketing and operating plans, as well as the opportunity to dramatically improve U.S. performance."

Not all analysts paint as rosy a picture as Yum's CEO. Restaurant analyst John A. Gordon, principal of San Diego-based Pacific Management Consulting Group, is eager to hear more from this coming Wednesday's investment meeting in New York. He sees warning clouds. He says Yum's Earning per Share estimates actually look about $.05 per share soft for 2012. The unexpected shortfall is likely from the third of its three brands, Taco Bell. That's because KFC and Pizza Hut have already been factored into the price. "Since YUM has enormous cash flow and can buy back any amount of shares to buoy up an artificial EPS, the U.S. shortfall must be material," says the analyst. "It looks like now all three of the U.S. brands may be struggling."

Yum says it expects same-store sales growth for restaurants of at least 2 to 3 percent. Operating profit for the Louisville-based franchising conglomerate has grown 5 percent. For 2012, the franchisor plans to refranchise 400 restaurants in the United States. It expects about $200 million in franchise fees for selling its company-owned units to franchise investors. Pizza Hut UK will also refranchise 460 of its restaurants.

The company plans to compensate for sluggishness in the United States and the developed world for a continued push of the brand in the developing world. China seems to be on top of the franchisor conglomerate's mind. In fact, the theme for its investor meeting on Wednesday is "On the Ground Floor of Global Growth, China and a Whole Lot More." With over 38,000 restaurants in more than 110 countries and territories, it plans to expand by 1,500 units internationally in 2012. The two largest countries will be China, with 600 additional restaurants and India, with 100.

The company announced that in 2011 China's operating profit growth was 15 percent with same-store sales growth of at least 5 percent and a double-digit rise in the number of restaurants.

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