July 18, 2008

 

Weaker US market drags down share prices for Yum Brands

 
 

Shares of Yum Brands Inc. (YUM) tumbled after the company released an earnings report highlighting weaknesses in its North American market.  

 

Yum's shares recently traded down 6.9 percent to US$33.97. 

 

The company owns KFC, Taco Bell and Pizza Hut restaurants, whose strong performance overseas was undercut by weaknesses in the home market due to the economic slump the US is currently facing. 

 

Although the company beat analysts' estimates, it was only because it had much significantly lower taxes than the past year.

 

This is not the first time favourable tax rates and international markets have saved Yum from a drubbing by investors.  However, the contrast between domestic and international markets was even more dramatic than expected, analysts said.  

 

Even as US sales rose, margins became thinner due to higher milk and chicken prices.

 

Analysts say as inflation is likely to continue eating away at Yum's margins until at least Thailand end of 2008.

 

The company is likely to look to world markets more and more.  The company itself expects 70 percent of its profit to come from outside the US in 10 years, compared with about 56 percent currently. 

 

Overall revenue rose 12 percent but operating expenses jumped 14 percent. Revenue overall rose 12 percent but expenses climbed 14 percent for Yum's second quarter. 

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