YUM Brands (YUM) Earnings Beat, But Guidance Bums Investors

Yum! Brands, Inc. (NYSE:YUM) beat estimates on both the top and bottom line reporting EPS of $0.58 per share versus consensus of $0.55, and $2.6 billion in revenues versus $2.5 billion expected.

CEO David C. Novak was quoted as saying “I’m pleased to report we expect to deliver 12% EPS growth this year, making 2010 the 9th consecutive year we meet or exceed our annual target of at least 10%. We followed up a strong first quarter with second quarter EPS growth of 17%, before special items. This was fueled by profit growth in each of our three divisions, including exceptional growth of 33% in China. Overall, system sales grew by 4% and worldwide operating profit increased 21%, prior to foreign currency translation benefit and special items.”

Notably Yum! continues to see significant growth in Chinese markets with year-over-year growth in traditional restaurants at +12%, KFC at +12%, Pizza Hut Dining at +8%, Pizza Hut Home Service at +28%. Novak reports that “A key driver of our overall growth continues to be new unit development in China and Yum! Restaurants International. We continue to expect to open about 1,400 international units this year and remain the industrys leading international new unit developer.”

Even with the Chinese excitement though shares of YUM are trading sharply lower after the report due to weak guidance. The company guided FY-2010 EPS at $2.39-$2.43 versus analyst expectations of $2.48. After rallying over 2% today along with a strong market, shares of NYSE:YUM are currently down 3.3% following the report in a cascade lower.

The conference call is tomorrow morning at 9:15 AM available on the YUM website. It will be worth listening to hear what Novak perceives as headwinds for the rest of the year causing the disappointing guidance.

Brandon Rowley is a trader at T3 Live.

Disclosure: No holdings.

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