Yum Brands earnings flat; Wendy's up

LOUISVILLE, Ky. - Fast-food rivals Yum Brands Inc. and Wendy's International Inc. could savor portions of their end-of-the-year financial reports.

For Yum, robust overseas sales made up for a lackluster U.S. performance.

Ohio-based Wendy's said its fourth-quarter earnings more than quadrupled from a year ago, when it took major charges for discontinued operations. But the chain fell just short of Wall Street's per-share expectations and warned of a tough stretch early this year.

"We expect a challenging first quarter of the year due to consumers' nervousness about the economy and the current slowdown in restaurant spending," Wendy's chief financial officer, Jay Fitzsimmons, said Monday. "In addition, we continue to see commodity price increases in 2008, which we plan to offset with menu price increases and further cost reductions."

The chain said it made $14.1 million, or 16 cents per share, for the quarter ended Dec. 30, compared with $3 million, or 3 cents a share, for the year-ago period when it recorded charges from the spinoff of the Tim Hortons chain and the sale of Baja Fresh Mexican Grill.

Discounting one-time charges including $6.5 million used to fund a committee studying options for the company, including a possible sale, Wendy's would have made 21 cents a share.

Sales fell slightly in the quarter to $596 million from $596.4 million a year ago.

Louisville-based Yum Brands, which operates the Taco Bell, Pizza Hut and KFC chains, reported essentially flat fourth-quarter earnings as robust sales in its China and international divisions countered rising costs and a sluggish U.S. performance.

Yum raised its 2008 earnings forecast to $1.85 per share from $1.82. The estimate doesn't include one-time gains from the sale of its minority interest in KFC Japan and from global refranchising.

The company had a record-setting year of restaurant openings overseas, and said it achieved at least 10 percent annual earnings per share growth for the sixth straight year.

Yum Chairman and Chief Executive David C. Novak predicted another year of double-digit earnings-per-share growth led by strong overseas sales and 5 percent U.S. operating profit growth. "Our teams, strategies and financial strength have never been better," he said.

Lackluster domestic sales remained a problem for Yum in 2007. U.S. operating profit for the year slipped 3 percent to $739 million

Larry Miller, a restaurant analyst with RBC Capital Markets, foresees a bumpy stretch for the fast-food sector amid the U.S. economic slowdown.

"I think you're going to see these guys have decelerating sales, with somewhat high costs," he said. "But they do have the franchise business model, which gives them a little bit of protection in terms of cash flow and earnings."

Citi Investment Research restaurant analyst Glen Petraglia, in a note to investors after Wendy's reported its earnings, mentioned broader problems for the industry — "commodity prices are rising, the consumer has weakened" — as well as headaches specific to Wendy's.

"Wendy's continues to search for the appropriate advertising tone," he said.

For Yum, net income for the three months ended Dec. 29 slipped to $231 million from $232 million a year earlier. Earnings per share of 44 cents climbed from 42 cents in the year-ago period, as the results were based on 28 million fewer shares outstanding.

Analysts surveyed by Thomson Financial expected earnings of 42 cents per share.

Revenue rose 8 percent to $3.26 billion for the quarter.

The company said fourth-quarter costs rose 9 percent to $2.93 billion.

Worldwide same-store sales, or sales at stores open at least a year, grew 4 percent for the quarter. Yum's burgeoning China division once again set a torrid sales pace.

Fourth-quarter operating profit totaled $99 million in the division that includes China, Thailand and Taiwan, up 44 percent from a year ago. Quarterly revenue grew 39 percent.

The company opened a record 852 new restaurants last year in the international division, which had an 18 percent increase in operating profit for the year.

In the United States, fourth-quarter operating profit slipped 1 percent to $196 million. For the year, operating profit was off 3 percent at $739 million.

McDonald's said recently its December sales were flat at U.S. restaurants open more than a year, followed by January U.S. sales roughly 1.5 percent above a year ago. The company blamed winter storms but also acknowledged "softer consumer spending."

Burger King Holdings Inc. recently reported a 29 percent surge in second-quarter profit, and its chief executive said he expects the company to exceed its previous guidance of 12 percent to 15 percent earnings-per-share growth this fiscal year.

But Miller said any thought of the fast-food industry being resistant to an economic slowdown is a misnomer.

"When you lose your job, are you eating at fast food or casual dining? You're not eating anywhere. It's not that they're trading down, they're just not eating out with the same frequency," Miller said.