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Yum Brands profit tops expectations as KFC, Taco Bell deliver

An order of french fries sit on a tray at a KFC fast food restaurant in New York October 30, 2006. REUTERS/Shannon Stapleton

By Siddharth Cavale and Richa Naidu

(Reuters) - Yum Brands Inc (YUM.N) reported a better-than-expected rise in quarterly profit on Thursday, helped by refranchising efforts and strong sales at its KFC and Taco Bell restaurants.

The company's shares rose as much as 2.1 percent to $67.98, its highest in more than a year.

Same-store sales rose 3 percent at KFC and Taco Bell in the fourth quarter ended Dec. 31, helped in part by new items such as the "$1 Double Stacked Tacos".

Operating profit at Yum's three chains, which also includes Pizza Hut, grew in the double digits, helping the company top its own growth forecast.

Helped by the refranchising of 232 stores in the quarter, core operating profit rose 13 percent, ahead of the 10 percent Yum had forecast in October.

KFC and Taco Bell have gotten off to a good start this year, Chief Executive Greg Creed said on a call with analysts and forecast a high single-digit percentage rise in Yum's underlying operating profit.

The company expects a 2-3 percent rise in same-store sales for the full year.


In contrast to KFC and Taco Bell, Pizza Hut sales at established restaurants fell 2 percent in the quarter.

This contributed to a modest 1 percent rise in same-store sales, missing analysts' average estimate of a 2.1 percent rise, according to Consensus Metrix.

"The quarter's results (at Pizza Hut) disappointed and are not acceptable," Creed said.

The lack of a single ordering system as well as Pizza Hut's reputation of being a sit-down restaurant rather than a delivery chain hurt sales.

To turnaround the business, Yum has hired outside experts to address issues, such as delivery times, digital efforts and layouts of the restaurants, which have larger dining areas than those focused on delivery.

Yum said in October it would reduce annual capital expenditure to about $100 million in 2019 from about $500 million in 2015 and planned to reduce general and administrative expenses by a cumulative $300 million by fiscal 2019.

Income from continuing operations fell to $285 million in the quarter from $290 million a year earlier.

Earnings per share from continuing operations rose to 76 cents per share from 66 cents in the year-ago period. Excluding items, Yum earned 79 cents per share, topping analysts' expectations by 5 cents, according to Thomson Reuters I/B/E/S.

Total revenue rose 2 percent to $2.02 billion, marginally below the average analyst estimate of $2.09 billion.

The latest-quarter results are Yum's first since spinning off its China business in November.

(Reporting by Richa Naidu in Bengaluru; Edited by Martina D'Couto)