Nothing whets Wall Street's appetite like a positive earnings surprise. On Oct. 11, Yum! Brands (YUM) reported a 12% jump in third-quarter profit, beating analyst expectations. and raised its full-year earnings forecast. Shares of the Louisville (Ky.) fast-food chain operator climbed to a 52-week high a day later, before settling at $59.08, up 8.2%.
Some traders may have even stopped by a Yum location on their lunch break, since the company's restaurants are seemingly everywhere. Spun off from Pepsico (PEP) in 1997 and formerly known as Tricon Global, the company owns and operates more than 34,000 quick-service restaurants worldwide, including such chains as KFC, Pizza Hut, and Taco Bell. More than 11,000 of those stores are in its international division.
Yum's exposure to overseas markets should keep profits cooking despite a slowing U.S. economy, some analysts say. At the same time, lower gasoline prices and strong branding initiatives could help Yum's domestic stores withstand a tougher consumer outlook. Ongoing stock buybacks and dividends may also support the shares.
STRONG CASH FLOW. For the third quarter, Yum posted earnings of 83 cents per share, ahead of analyst estimates of 75 cents. The company also lifted its earnings guidance for 2006 to $2.89, for growth of 14%, from its prior forecast of at least $2.83. "The power of our global portfolio and international scale and growth makes us not your ordinary restaurant company," said David Novak, Yum's chairman and chief executive, in an Oct. 12 conference call.
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