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Tuesday, October 09, 2007

Through The Fly's Eyes: YUM! Brands

from Eric Buscemi of

YUM! Brands Keeps on Cookin'

If you had to guess how a popular fast-food chain would fare financially after facing multiple PR nightmares, you'd probably guess that that it wouldn't be doing well. You may even think back and recall all the bad press Wendy's (WEN) got in March of 2005, when a woman allegedly found a finger in her chili. The incident was later reported to be fraudulent, but it still affected sales, with a company spokesman admitting, "This has been an ordeal for all of us. Hopefully there will be a resolution soon."

Well, not so with YUM! Brands (YUM). It just reported excellent results after not one, but two public relations nightmares within the last 12 months. Last December, YUM's Taco Bell chain had an E. Coli breakout stemming from contaminated produce, and then, in February, the YUM's Taco Bell and KFC chains in New York City were found to be infested with rodents.

Before today, despite those horror stories, the stock was up to about $36 from a year ago of about $27. Now, after the results, it has jumped to over $38 a share. What are these results? Third quarter EPS was 50 cents, better than a consensus of 45 cents, and third quarter revenue was $2.56B, better than a consensus of $2.46B. Full year EPS guidance was also a penny over the consensus estimate of $1.64. YUM also announced that it planned up to $4 billion in share buybacks.

Additionally, the CEO of YUM! Brands, David C. Novak, said of Taco Bell, "We're starting to see signs the business is turning, and we expect the business will continue to recover into the fourth quarter and well into next year." If this is merely the beginning of the turn around, this fast-food story will be quite a success for quarters to come.


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