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Must-know: Management’s outlook for 2014 and beyond

Amit Jhaveri

Must-know: Yum! Brands quarterly overview 2Q14 (Part 11 of 13)

(Continued from Part 10)

Management’s outlook

The management expects a 20% full-year earnings per share (or EPS) growth, excluding special items, for 2014. It also expects double digit EPS growth in 2015.

The previous chart shows a full-year EPS estimates by Wall Street analysts’ for 3Q14 of $1.02, $0.97 for 4Q14, $0.95 for 1Q15, and $0.82 for 2Q15. Wall Street analysts’ regularly estimate earnings for a year in advance and usually for most companies including McDonald’s (MCD) and Burger King (BKW). An investor looking to invest in the restaurant industry can invest in exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment ETF (PEJ) and the PowerShares Dynamic Food and Beverage ETF (PBJ).

Profit margins

The management has given an operating profit margin guidance of more than 10% for 2014. Due to the poor performance of Pizza Hut in the U.S., the management has cut its full-year earnings guidance. The company also expects a full-year EPS growth of 20%. It expects restaurant margins to be at least 18% for the second half of 2014, which is affected by an expected commodity inflation of 3% and a higher inflation in labor costs.

China’s division profit margin is expected to grow by 40% excluding the foreign exchange impact on a full-year basis in 2014. Outside China, the breakfast menu at Taco Bell is expected to contribute meaningfully to the profits, with management expecting a stronger second half of the year for the brand. The company expects higher profits from Quesarito, which is a higher margin item in its Taco Bell menu. According to the chief financial officer, Patrick Grismer, in 2015 Yum! Brands’ digital strategy and brand building activities will reap further benefits.

With the above action plan, the company expects a full-year earnings before interest, taxes, depreciation, and amortization (or EBITDA) of $3 billion, which includes $2 billion in franchise fees.


Continue to Part 12

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