by Linda Reyburn

Created on: January 23, 2012   Last Updated: January 26, 2012

Even in a rotten economy, four things still sell when people are depressed: alcohol, second-hand vehicles, cheap housing, and prepared food. Before their fourteenth anniversary in October 2011, Yum! Brands' (YUM) third quarter conference call outlined stunning results: 20% ROIC, 13% EPS growth, and 15% YTD growth in China. The sun shines on YUM around the world.

YUM's retail business model combines fast-food chains such as KFC, Taco Bell and Pizza Hut under one financial roof, but those are just the United States concepts. Global growth is truly why this company is doing well, because it would be sunk if it depended solely on its American franchises. David Novak, Yum! Brands' chairman and CEO, is not mincing matters when he says that their "biggest challenge" lies in the States. (See his video presentation here.) The depressing 3% growth rate might be overcome by re-branding, but US restaurants are hampered by internal fights between franchise and franchisees, and lack of "unified purpose", among other things. In fact, Novak is not yet saying that KFC will be able to pull out of their slump, although Taco Bell is getting good service reviews and Pizza Huts are spreading in small towns. Right now, the real cash cow for YUM lies overseas.

Novak realistically regards McDonalds (MCD) as the stiffest competition. While YUM has 150 restaurants in Russia, McDonalds restaurants bring in $300 million. While YUM nets less than $100 million in France and Germany, McDonalds nets $1 billion in both those countries. Nor is he naiive regarding current and future challenges in China, including high inflation, food cost, and government crackdowns on business via extra taxes. Yet these challenges haven't noticeably driven holes into YUM's 20%+ growth margin with their Chinese stores; international growth has pulled up company statistics as a whole.

In the 3Q conference call and video presentation, Novak pointed out why China is having a bumper year. A number of strategies are paying off, such as the internal-to-external growth mode. Daily CEO video interaction "makes a big company small", so Novak says, and it must have some effect on China's 4,000+ GM's - they've really taken to heart his stock Chinese phrase for "build more". Pizza Hut alone has "560 units in over 120 cities", half of the 3,500 Chinese KFC's have 24-hour delivery that includes seafood and rice dishes. This is part of the global strategy, which includes the "Young Wampoa" academy. After four years of training

• 1
• 2
• Next Page >>