Yum! Brands: Is This Country About to Crush Profits?

According to Wall Street 24/7, Yum! Brands, (NYSE:YUM) the world’s largest fast food restaurant company which licenses and operates an estimated 38,000 establishments across the globe, and boasts sales exceeding 11 Billion dollars in 2010, cannot expect continued growth at its current rate. Yum! Brands has seen its shares go up 45% over the past year, giving the company a substantial lead over competitors such as McDonald’s (NYSE:MCD) and Burger King.

Skeptics maintain that Yum!’s rise in stock value is unsubstantiated by the company’s financial data, citing a paltry 3% rise in first quarter revenue, further mitigated by 1% decline in sales in US locations coupled with increasing operating costs due to rising fuel prices.

Yum! (NYSE:YUM) shareholders claim that domestic sales data is irrelevant, as the company expects its highest margins of profit and most rapid growth to continue to occur in China (NYSE:FXI), where it operates nearly 4,000 restaurants. According to Yum!’s 1Q earnings report, sales rose by 24% in that region. However, projected rises in commodity costs and the inflation they bring, as well as concerns over rising labor costs due to Chinese union activity may place Yum! Brand’s Chinese operations in a precarious situation.

With McDonald’s (NYSE:MCD) and other major fast food empires poised to bite into the company’s growing market share in China, Yum! must also expect stiffer competition in the coming year.

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