Yum! Brands (NYSE: YUM) reported earnings for the third quarter after the bell on Tuesday. Revenue went up 11% to $2.8 billion. Earnings per share rose 16% to $0.58. Global comps increased 3%.
You know, those numbers are not bad at all. As we await earnings reports, I'm sure that you, like me, are nervous. I mean, we're in the middle of a global economic slowdown fueled by a financial-system collapse, so the data this quarter is going to be particularly telling. The fact that Yum! has double-digit growth to its credit is pretty cool to see.
No, that doesn't mean I'm a bull on the markets all of a sudden, but it does show that people are still stopping by Pizza Huts and KFCs. Guess people won't give those guilty pleasures up during the monetary apocalypse, huh? And let's look at Yum!'s cash flow. While net cash from operating activities year-to-date was pretty much flat at $1.1 billion, it was more than enough to cover the capital spending and dividend obligation. As you can imagine, management highlighted the nice cash-flow generation of Yum!'s business. During a market crisis, it's the thing to do.
According to this source, Yum! beat by four pennies. Shareholders will be pleased by that, and perhaps the shareholders of Burger King (NYSE: BKC), Wendy's/Arby's Group (NYSE: WEN), and McDonald's (NYSE: MCD) can take Yum!'s performance as a good omen for their companies. I can't say that Yum! Brands is going to rocket from here based on the earnings news. But I can say that long-term investors with a lot of patience should have a winner on their hands based on the brand equity of the company and its cash-flow-generating abilities.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
10-08-2008 @ 1:14PM
Obama is Boring said...
Yum Brands, is a perfect example of why not to raise taxes on this business over $250,000. Obama thinks he can help by raising their taxes and declining their net cash flow? Will they layoff people or no new job growth to compensate for the new taxes by Obama? Remember, cash flow pays the bills.
There is no way you can tax your way into prosperity in a bad economy and I am sure Yum Brands is working hard to keep their employees employed. Obama will make that even harder for them with his unrealistic neophyte policies.
10-08-2008 @ 4:59PM
Iridium said...
Yum! Brands growth came directly out of China. In the USA they are the worst managed restaurant chains in the business. The corporate mantra is keep labor costs as low as possible and keep food waste costs as low as possible.
Yum! doesn't work very hard to keep its employees employed. In fact they try to work the employees they do have as hard as possible. Often times making one or two employees do the work of 4 or 5. If labor cost rises above 12% they send employees home. They could care less about employees making money. What matters is safeguarding the overall company bottom line. If that means one shift leader handling drivethrough, front register, food prep, and inventory then so be it.
What results is the worst customer service of any place you go. The employees and management are terrible and you have frequent prepared food shortages resulting in hour waits for a piece of fried chicken.
When one of the largest Pizza Hut franchise holders files for bankrupcy I do not think you can call Yum! a success.
10-08-2008 @ 6:53PM
Shelley said...
YUM hasn't shown that its started an uptrend so what's the rush? Wait for confirmation. But then even more importantly, ALWAYS ensure you have your PROTECTIVE Exit Strategy in place. One that will constantly be adjusting to the stock's behavior and overall market conditions. That can get you out at the right time. http://www.smartstops.net