LOUISVILLE Ky. Yum! Brands Inc. reported a 14-percent drop in first-quarter profit on negative effects of a stronger U.S. dollar and slowed domestic sales, especially at Pizza Hut and KFC.
Yum, one of the world's largest restaurant companies, said Wednesday that more of the same is in store, as currency exchange rates will continue to hurt reported revenue and profit, and consumer spending shows no immediate signs of increasing. The company's U.S. same-store sales for the first quarter ended March 31 fell 2 percent.
“We forecast the [current] second quarter will likely be Yum’s most challenging quarter and the low point of our year,” said David Novak, chairman and chief executive at Yum.
The franchisor has said in the past that the second half of 2009 will be better for Yum, which is parent to Pizza Hut, KFC, Taco Bell and other quick-service chains. Products like KFC’s grilled chicken as well as new marketing for Pizza Hut and Taco Bell are expected to gain more traction as the year progresses. In addition, commodity cost deflation is expected in the second half of the year, following a difficult 2008 that saw food costs skyrocket. The company also has implemented cost-cutting initiatives and a refranchising program.
Still, the current year did not start well for Yum, a multi-national company that gets nearly half of its revenue and operating profit from operations overseas. Because of the stronger U.S. dollar, which leads to less money earned overseas once converted to U.S. currency, operating profit in the company’s international division alone was hurt by $21 million, or 15 percentage points.
First quarter consolidated net income totaled $218 million, or 46 cents per share, compared with $254 million, or 50 cents per share, in the same quarter a year earlier. Excluding special items, Yum said it would have earned 48 cents per share in the latest quarter versus 42 cents per share a year ago. Items included a $100 million gain last year from the sale of its minority interest in KFC Japan and current-year gains and losses from U.S. restructuring initiatives, including the refranchising plans.
First-quarter consolidated revenue fell 8 percent to $2.22 billion.
Yum’s China operations continued to dominate the company’s performance, as revenues rose 19 percent to $617 million and its operating profit rose 27 percent to $131 million.
Contact Sarah E. Lockyer at [email protected].
