Ahead of the Bell: Yum Brands

Yum Brands may rise after co. posts 4Q adj. profit that topped analysts' expectations

Associated Press

NEW YORK (AP) -- Wall Street remains split over how quickly Yum Brands will be able to distance itself from a terrible year, despite a stronger-than-expected final quarter for 2013.

Late Monday, the company stuck by its projections for per-share earnings growth of 20 percent in 2014 and shares rose more than 4 percent in premarket trading Tuesday.

Fourth-quarter profit fell by 5 percent as the owner of KFC, Pizza Hut and Taco Bell refinanced debt. Profit for the entire year fell 32 percent.

Yum, the biggest Western fast-food operator in China with about 5,300 restaurants, was rattled last year when Chinese TV reported that its suppliers were giving chickens unapproved levels of antibiotics. The company aggressively countered those reports with its own marketing campaign, only to be waylaid a few months later by an outbreak of bird flu in the country.

Jefferies & Co. analyst Andy Barish believes it may still take some time for the company to fully restore business at KFC in China. There was another avian flu outbreak recently and new economic data shows that the world's second largest economy is slowing.

"We worry about (January) trends given recent China economic data and the resurgence of Avian Flu cases ahead of Chinese New Year," Barish wrote. "(Comparable-store sales) visibility (is) still hampered by multiple issues, and we think it will take time for KFC's refresh to impact local perceptions."

China accounts for more than half of the company's total revenue.

China has reported more than 50 H7N9 infections in 2014 after the strain jumped from birds to people for the first time last year. The virus remains hard to catch and most cases have been linked to contact with poultry, but scientists worry that could change if it mutates into a form that allows it to spread easily among people.

Yet Paul Westra of Stifel Nicolaus believes the China fears are overblown, saying that the latest avian flu outbreak will likely turn out to have a smaller impact and more temporary one than many investors feared.

Stifel Nicolaus maintained a "Buy" rating and its $95 price target.

Shares of Yum Brands Inc. rose $2.78 to $68.94 before the opening bell. Shares are down 3 percent over the past week, amid a broad sell-off in Asian and Western markets, and they down more than 12 percent this year.

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