While the new EPS guidance is two cents higher thanYum! previously stated, analysts maintain that Yum!stock, which ended trading yesterday at $49.85, isfairly valued. In fact, Yum! actually cut its EPSguidance eight cents for the second half of the yeardue to worse-than-expected performance from thecompany's China division.
"YUM's updated China guidance implies that thetimeline to a full sales growth recovery in China(i.e. long-term guidance levels of at least +22%) maybe pushed out into early 2006," notes Paul Westra ofSG Cowen & Co. in a research note.
Nonetheless, Yum!'s chairman and CEO David Novakpoints to the company's International and Chinadivisions as future growth vehicles. During the secondquarter 2005, international division operating profitincreased 16%. Moreover, the entire company expandedduring the quarter by opening new restaurants. The international division, for example, grew 3%, while the China division expanded by 22% and the US operation increased by 18%.
"A key growth driver for the Yum! Restaurantsinternational division is continued new-restaurantopenings across an array of international markets and leveraging the substantial infrastructure in place around the world," states the company's earnings release.
According to Yum!, it is on track to open a record 375new restaurants in the China division and to open atleast 725 new restaurants for the internationaldivision. "This will be the fifth straight year of atleast 1,000 new restaurants opened outside the US,and we expect to at least maintain this pace goingforward," the release says. During the second quarter,Yum! opened 227 new restaurants in 36 territories, 126more than this time last year.
Yum! operates nearly 34,000 restaurants in more than100 countries and territories.
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