Yum predicts more profits from China

Taco bell powering Domestic revenue

Associated PressOctober 11, 2012 

LOUISVILLE — Yum Brands, the owner of Taco Bell, Pizza Hut and KFC, predicted Wednesday that its rapidly growing China business will serve up another round of strong profit growth next year, despite a slowing economy in its most important overseas market.

Executives also foreshadowed more menu rollouts at its flourishing Taco Bell business in the United States.

The Mexican-style chain has seen its sales grow on the popularity of its Doritos Locos Tacos, with shells made out of Nacho Cheese Doritos, followed by a rollout of more upscale food created by celebrity chef Lorena Garcia.

One day after reporting a quick profit turnaround in its China division, Yum executives said they're confident of achieving 15 percent profit growth in China next year, driven partly by a record pace of restaurant openings and introductions of new products.

"Our China business is having another strong year," Yum Chairman and CEO David C. Novak said Wednesday.

China's economic growth fell to 7.6 percent in the three months that ended in June. That's robust by the standards of the United States and Japan, where growth this year is forecast in low single digits. Analysts are forecasting a rebound in China late this year or in early 2013.

Yum said Tuesday its third-quarter operating profit in China rose 22 percent, a quick rebound from a decline the quarter before.

That turnaround in China, coupled with strong profit growth at its restaurants in the U.S. and elsewhere around the world, helped Yum post a 23 percent increase in its third-quarter net income.

The second-quarter profit decline had been a rare event for Yum in China, and was blamed on rising costs for ingredients and workers. Those costs have since moderated, helping improve profits.

Yum opened its 4,000th KFC in China in August, and has ramped up its breakfast offerings, 24-hour operations and delivery services at KFC stores there.

Yum now expects to open at least 750 stores in China this year, up from its prior forecast of at least 700.

"From day one, we've never been chasing a number," Novak said. "The number just keeps getting bigger and bigger than any of us ever expected."

In the United States, Taco Bell has been the catalyst behind Yum's strong performance. Yum executives said Wednesday that Taco Bell will expand its line of Doritos Locos Tacos next year.

"Part of the reason we pushed that into 2013 is because the product was so successful it basically used all of our available supply of taco shells," said Yum President Rick Carucci.

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