Yum! Brands Profit Climbs 17% on Higher

Yum! Brands Inc., the owner of the Pizza Hut, Taco Bell and KFC restaurant chains, reported third- quarter profit that exceeded analysts' estimates and raised its full-year forecast on increased China sales.

The fast-food chain also said today it plans to buy back as much as $4 billion of its shares in the next two years. The stock climbed 3.9 percent in extended U.S. trading.

Yum has expanded overseas, especially in China, its fastest-growing market, as sales have slumped in the U.S. following an E. coli outbreak at Taco Bell restaurants last year and increased competition from McDonald's Corp. International revenue made up 52 percent of the third-quarter total, up from 43 percent a year earlier.

``China is the key,'' said Colin Glinsman, chief investment officer at Oppenheimer Capital, which owns 8.6 million Yum shares. ``They will reach more than 15,000 stores before the story is over 15 years from now.'' The New York- based Glinsman helps oversee about $10 billion in assets.

Net income increased 17 percent to $270 million, or 50 cents a share, from $230 million, or 42 cents, a year earlier, Louisville, Kentucky-based Yum said in a statement. Revenue climbed 13 percent to $2.56 billion.

Eleven analysts surveyed by Bloomberg estimated Yum would earn an average of 45 cents a share. Seven analysts projected sales would be $2.45 billion.

Full-year profit will be $1.65 a share, higher than the $1.63 a share Yum previously forecast. Analysts surveyed by Bloomberg had estimated $1.64.

Share Gains

Yum increased $1.41 to $37.70 at 7:22 p.m. in trading after the results were released. Earlier the shares gained $1.94, or 5.6 percent, to a record $36.29 in New York Stock Exchange composite trading.

Moody's Investors Service said today it was more likely to lower its rating on Yum's debt because the share buyback plans are an indication of a ``much more aggressive'' financial policy. Moody's rates the unsecured debt Baa2, two steps above high-yield, high risk junk grade.

Yum is the world's largest fast-food company by number of locations, with nearly 35,000 stores in more than 100 countries and territories.

Systemwide sales at older locations climbed 1 percent. Sales at company-owned Taco Bell restaurants fell 6 percent, Yum said today.

Taco Bell

Taco Bell is still recovering from an E. coli outbreak last year that led more than 70 people to become ill in four states. The chain and KFC were also hurt after a rat infestation in a New York City restaurant in February was publicized on the local news.

Higher commodity costs are also curbing profit. Cheese prices are up 44 percent from a year earlier and are only 3 percent below their 12-month high, J.P. Morgan Securities Inc. said today. The price for chicken legs has risen 48 percent from the year-earlier period.

Same-store sales climbed 11 percent in China, and 7 percent in its international division, Yum said.

Yum is opening about one restaurant a day in China with plans to add at least 375 restaurants this year. The chain had almost 2,300 KFC and Pizza Hut restaurants in mainland China as of mid-June.

McDonald's, the world's largest restaurant company by sales, plans to have at least 1,000 stores in China next year, up from 800 in August. Oct. 8 (Bloomberg) --