Yum Brands Inc. (NYSE: YUM) reported a better than expected quarter with the international division leading the way. U.S. sales were basically flat, but the international division drove revenues up 12% year-over-year, and earnings up 13%. The Street was expecting an 11% increase.

Yum Brands suffered a serious set back in the New York City market in late 2006 when a Taco Bell restaurant had an E.coli outbreak and over 70 patrons became ill. The Taco Bell/KFC brand suffered another setback when a television crew in New York City filmed rats running in and out of the restaurant. Yum Brands has certainly taken the steps to prevent either situation from ever happening again, but the public image perception will take more time to change.

Due to the two unfortunate situations, same-store sales for the quarter were a negative 3%, mostly attributed to Taco Bell's negative 7% sales growth. KFC and Pizza Hut posted positive same-store sales, not enough to offset Taco Bell's results though.

Yum has found its sweet spot in the international division. The company is on track to open up 800 new units overseas this year, 375 of those in China. The Chinese market has been quite receptive to the Yum brands of Taco Bell, Pizza Hut and KFC. The margins are as strong in the international markets and the room for aggressive growth is certainly prevalent.

Yum is executing on its strategy and should finish the year with earnings of $1.63 per share. For 2008 the company is endorsing $1.81-1.84. The upside to the numbers could come from the various concepts building strong same-store sales in the United States. The jury, however, is still out if the company's image has been re-built to the level it enjoyed before the nasty New York City incidents.

Georges Yared is the Chief Investment Strategist of Yared Investment Research.

After dealing late last year with an E. coli outbreak which was initially thought to trace back to raw green onions, Taco Bell -- a division of Yum! Brands (NYSE:YUM) -- is being summoned to court. The Southern California farm responsible for harvesting said controversial (but in fact perfectly fine) green onions has filed a libel lawsuit, alleging that the fast food company continued to attribute the outbreak to the farm's green onions, even though the produce was not contaminated.

An attorney for Boskovich Farms has said that "Taco Bell engaged in an irresponsible and intentional crusade to save its own brand at the expense of an innocent supplier." This move ultimately cost the Farms "millions of dollars in business."

A Taco Bell spokesperson said the fast food company was merely acting in the interest of safety for its customers. "We believed green onions may have been the source based on the presumptive positive testing, so we immediately removed them from our products . . . we later learned they were not the source of the E. coli outbreak." Later analysis indicated that lettuce was the likely source of the outbreak, but not before green onions were stripped from all items at the company's 5,800 worldwide locations. Lettuce still remains in about 70% of the Taco Bell menu items.

The breakout, which caused more than 70 people in the Northeast to fall sick, cost the chain an estimated $20 million in operating profit.

In early trading, YUM shares are virtually unchanged.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

Yum Brands' (NYSE:YUM) Taco Bell now says that the food at all of its restaurants is safe. The green onions suspected as the source of the recent E. coli outbreak in the northeast are gone, and the company has switched suppliers in the region. Over 50 people have ended up in the hospital as a result of the E. coli outbreak, but there is hope that the worst is past, despite the fact the bacteria has surfaced in a Taco Bell in New York City.

The question is why E. coli continues to be such a threat to consumers throughout the country. In today's New York Times, Eric Schlosser addresses the issue. Schlosser is the author of Fast Food Nation, a fascinating and at times alarming look at the fast food industry and its place in American culture. He argues that changes in the way food is produced in the US over the last 40 years have raised the odds of widespread outbreaks of E.coli and other food-borne pathogens.

One big change is the concentration of producers. Food in the US is now produced by a few large corporations, rather than many smaller ones. For example, today 13 slaughterhouses produce most of the meat eaten by Americans. This means that once there is a problem, it tends to spread far and wide within a large company's national network. Years ago, when producers were smaller, problems in the food supply chain would remain local.

The second big change is in the food safety system. Large food corporations have fought relentlessly to reduce the number and frequency of federal inspections. In the 1970s, the Food and Drug Administration made 35,000 food safety inspections per year. Today, there are less than 3,400. And the number of inspectors has fallen by roughly 20%.

So the solution to the problem seems fairly obvious. Given the growth of the food network, we need more food safety inspectors. And there needs to be real penalties for producers who break the rules. This runs contrary to the American suspicion of government, but if the government doesn't monitor the safety of the food system, who will? As Schlosser writes, "whether you're a Republican or a Democrat, you still have to eat." And eating without worrying about E.coli seems like something worth paying for.

Today, Taco Bell ordered all of its stores to stop using green onions in its fast food. Taco Bell, a unit of Yum Brands Inc. (NYSE: YUM), does not have conclusive proof that green onions are the source of a recent E. coli breakout in its stores in Pennsylvania, New York and New Jersey. But given that green onions have been linked to such outbreaks in the past, the company decided to stop serving the savory bulb as a matter of caution.

Ben Berkowitz blogged about this earlier this week. He actually suffered through an E. coli infection as a child, and reminds us how serious this can be. Children have died from the bacteria in the past, so extreme caution is well-advised.

The larger question is why E. coli outbreaks have become a regular feature of the American food system. Is it an inevitable product of how food is produced in the U.S.? Farming in the U.S. is now dominated by large corporations and industrial methods. Waste from massive feed lots inevitably contaminates fruit and vegetables through shared irrigation systems. And industrial meat processing seems to increase the infection of meat. It may be that the whole system needs more careful monitoring and regulation. It may be more expensive, but I for one would pay a little more to avoid eating an E. coli sandwich.

If you are concerned about this, or if you have recently eaten in a Taco Bell and have questions, you can call 1-800-TACO BELL to contact the company.

It started with just a couple of people at a couple of restaurants in New Jersey, but within a day or two, Taco Bells across New York and New Jersey were being shuttered as dozens came down sick with the E. coli bacteria.

No one is yet suggesting that this particular outbreak will be anything like the 1993 Jack in the Box tragedy, when four kids died from eating tainted meat. It does, however, raise questions as to how it happened and, more importantly, what the source was. Bad meat? Dirty lettuce? Sanitary procedures? (Which seems unlikely, given the distance between the restaurants).

Having had an E. coli infection myself when I was young, I can attest to how unpleasant and unfortunate it is -- think lots of pain, dehydration, lack of sleep, inability to eat. And that's in a very mild case; the sickest victims are suffering permanent kidney damage and worse.