LOUISVILLE — Yum Brands executives said Thursday that Taco Bell, their most profitable U.S. chain, hasn't recovered from the impact of a now-dropped lawsuit over the beef content of its taco filling.
But the setback didn't spoil Wall Street's view of the Louisville-based fast-food company, which also owns the KFC, Pizza Hut, A&W and Long John Silver chains.
Yum's shares rose Thursday, the day after it said its first-quarter profit surged in China and its overall profit rose 10 percent. Yum also posted solid growth elsewhere overseas, fueled partly by expansion, especially in emerging markets. But Yum's performance varied widely by geography.
The biggest drag was in the United States, where Taco Bell accounts for about 60 percent of Yum's profit. The company's operating profit fell 13 percent here.
"We have not yet been able to reverse the negative sales trends at Taco Bell," Chief Financial Officer Rick Carucci said in a conference call with industry analysts. "If anything, sales have gotten a little bit weaker since the end of the quarter, and it is difficult to predict exactly when we will break this trend."
Carucci also said Yum's U.S. business faces a challenging year with fuel and commodity prices high and value-conscious consumers trying to rebound from the recession. He said the second quarter will be 2011's "low point" for Yum in the United States.
"Clearly, the key to our improvement in the U.S. relies heavily on our ability to turn around sales trends at Taco Bell," he said.
Chairman and CEO David C. Novak said fallout from the suit has "lingered longer than we anticipated." But he said — without offering specifics — that Taco Bell is "working on other solutions" to generate a sales rebound.
Taco Bell hasn't lost its most loyal customers, he said; just the chain's occasional customers are staying away for now.
"We're optimistic that we will be able to get the business turned around, but we've got some work to do," Novak said.