Brands, Inc. (NYSE:YUM) is gearing up to report earnings after the close tonight, but this morning investors are responding to news that the company will split off its China business into a new public company, Yum China Holdings Inc. Taco Bell sales rose 2% and Pizza Hut sales rose 1%. The company's first-quarter earnings, excluding one-time items, rose 9% from the prior year to 75 cents a share vs. Analysts had a consensus revenue estimate of $3.09 billion. Brands also hiked its full-year operating profit growth forecast from 12% to at least 14%, citing improved trends in China.
Analysts surveyed by Thomson Reuters had projected 74 cents a share on $3.09 billion in revenue. The company's revenue for the quarter was down.1% on a year-over-year basis.
Other issues: Analysts at Nomura believe "there is not a lot to like about the USA setup" heading into the latest earnings announcement. YUM operates through four segments: YUM China (China Division), which includes all operations in mainland China; The KFC Division, which includes all operations of the KFC concept outside of China Division; The Pizza Hut Division, which includes all operations of the Pizza Hut concept outside of China Division, and the Taco Bell Division, which includes all operations of the Taco Bell concept.
"All in all, we continue to argue that the structure of Yum Brands - three large brands with little-to-no synergies (and arguable, dis-synergies) crammed together almost 20 years ago by a beverage company - is not ideal", Nomura wrote.
As far as Asian operations are concerned, few companies have drawn as much financial media attention as Yum Brands. (NYSE:YUM) traded down 0.09% on Tuesday, hitting $86.36.
"We believe buying Yum today is the best way to invest in new Yum, rather than waiting for the separation", the bank wrote in a Monday note.
Oppenheimer reiterated a Buy rating.
Nomura reiterated a Buy rating with a $95 price target. Brands (YUM) have an average price target of $88.5 for the near short term.
Yum reaps more operating profit from China than any other division.
Yum Brands (NYSE:YUM) last issued its earnings results on Wednesday, April 20th.